My employer pays me a salary plus a housing allowance. Is the housing allowance income? Where do I report it?
A minister's housing allowance, sometimes called a parsonage allowance or a rental allowance, is excludable from income for income tax purposes, but not for self-employment tax.
If you receive in your pay an amount officially designated as a rental allowance, you can exclude the allowance from income if:
- the amount is used to provide or rent a home, and
- the amount is not more than reasonable pay for your services.
If housing is furnished to you by your congregation as pay for your services, the exclusion cannot be more than what is reasonable pay for your services.
If you own your home and you receive a housing allowance as part of your pay, the exclusion cannot be more than the smaller of the following:
- the amount actually used to provide a home,
- the amount officially designated as a rental or housing allowance, or
- the fair rental value of the home, including furnishings, utilities, garage, etc.
References:
- Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
- Tax Topic 417, Earnings for clergy
Are housing allowances taxable to ministers?
A housing allowance paid to you as part of your salary is not income to the extent you use it, in the year received, to provide a home or to pay utilities for a home with which you are provided. The amount of the housing allowance that you can exclude from your income cannot be more than the reasonable compensation for your services as a minister. The church or organization that employs you must officially designate the payment as a housing allowance before the payment is made. A definite amount must be designated; the amount of the housing allowance cannot be determined at a later date. Other provisions may apply. While not subject to income tax, the housing allowance may be subject to self-employment tax. For additional information on housing allowances, refer to Chapter 6 of Publication 17, Your Federal Income Tax or Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers. For information on earnings for clergy, refer to Tax Topic 417.
References:
For a minister, is the housing allowance included in box 1 with wages?
No. The church would enter the amount of any parsonage allowance and any utilities allowance in Box 14 of Form W-2. If the housing allowance exceeds the minister's qualified expenses, the minister would add the excess to the wage amount and enter the sum on line 7 of Form 1040.
References:
As a minister, what do I do if my household expenses are greater than my housing allowance?
Usually, the total of household expenses is only used as a limit to the amount of excludable parsonage allowance (for an ordained, commissioned, or licensed minister). A parsonage allowance or the fair rental value of a parsonage provided as pay for a minister's services is excluded from income for income tax purposes only, not for the computation of self-employment tax.
While the excess cannot be claimed, it is helpful to prepare a worksheet like the one labeled "Attachment 1," shown as part of the comprehensive example at the end of Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers. This worksheet, when completed, reflects the amount of income you've received, your qualified expenses, and your tax-free (excluded) income. If your expenses exceeded the amount of your parsonage allowance, your allowance will be fully excludable for income tax purposes.
References:
- Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
- Tax Topic 417, Earnings for clergy
As a minister, what do I do if my household expenses are less than my housing allowance?
To the extent that your household expenses are less than your parsonage allowance, your allowance is taxable income for income tax purposes.
If you receive in your pay an amount officially designated as a rental allowance, you can exclude the allowance if:
- the amount is used to provide or rent a home, and
- the amount is not more than reasonable pay for your services.
If housing is furnished to you by your congregation as pay for your services, the exclusion cannot be more than what is reasonable pay for your services.
If you own your home and you receive a housing allowance as part of your pay, the exclusion cannot be more than the smaller of the following:
- the amount actually used to provide a home,
- the amount officially designated as a rental or housing allowance, or
- the fair rental value of the home, including furnishings, utilities, garage, etc.
The amount of the allowance that cannot be excluded should be entered with your wages on line 7 of Form 1040, U.S. Individual Income Tax Return.
References:
- Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
- Tax Topic 417, Earnings for clergy
Are all ministers treated as self-employed for social security purposes?
Services that a minister performs in the exercise of his or her ministry are covered under the Self-Employment Contributions Act (SECA). That means they are exempt from social security and Medicare withholding, but would be responsible for paying self-employment tax on their earnings as an employee and on their net earnings from self-employment.
There are some members of religious orders, ministers, and Christian Science practitioners who have requested and been granted exemption from self-employment tax. There are also members of religious orders who have taken a vow of poverty and ministers who are covered solely by the social security laws of another country under a social security agreement between the United States and that other country.
References:
- Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
- Tax Topic 417, Earnings for clergy
I am a licensed minister. What are the procedures to follow to file for Social Security Exempt Status?
The procedures to request an exemption from self-employment tax are listed in Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers.
References:
- Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
- Form 4361, Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners
- Tax Topic 417, Earnings for clergy
As a minister, I previously elected, and was approved for, an exemption from social security coverage. Can I revoke this election?
If you are a minister, a member of a religious order not under a vow of poverty, or a Christian Science practitioner who previously elected exemption from social security coverage that was effective for tax year 1999, you now have a limited period of time to revoke that exemption. You must file Form 2031 by April 15, 2002, or by the extended due date if you get an extension of time to file your 2001 return. Once you revoke the exemption, you can never again elect exemption from social security coverage.
References:
- Form 2031, Revocations of Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners
- Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
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