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100% of Compensation Designated as Housing Allowance

Questions:

Are both full- and part-time pastors considered as employees who receive year-end earnings Form W-2? Can 100% of their pay be designated as housing?

Answers:

All church employees should receive Form W-2 regardless of their full- or part-time status. Form 1099-MISC is reserved for reporting independent contractor compensation only. Common examples of independent contractors compensated by church include janitorial services and guest speakers.

The housing allowance is limited to the lesser of three amounts: a) the amount actually used to provide a home, b) the amount designated by a minister's employer, c) the fair rental value plus actual cost of utilities. It may be that a minister expects a) and c) to exceed his full cash compensation, especially if he is part-time. Accordingly, a 100% designation may be appropriate.

Both full- and part-time ministers are eligible for the full list of allowable employee business expense deductions reportable on Form 2106. See the Form 2106 instructions for more information.

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