January 03, 2011

IRS Filing by Church if No Taxable Compensation is Paid

Question:

Does a church need to file an IRS form of any type if the church only pays professional reimbursement and housing allowance and not salary?

Answer:

Reporting of housing allowance to the IRS is not required. I recommend to churches that do pay taxable compensation to report the housing amount as a memo item in Box 14. This enables the minister to test whether any portion of the housing allowance is taxable. When no taxable compensation is provided I recommend that a church provide a report to its minister of the total housing allowance paid so that he may perform a similar test. However, that report is not submitted to the IRS. I have reproduced the three-part test below.

Professional reimbursements paid in an accountable plan are not reportable to the IRS. To review the requirements for an accountable plan, I suggest that viewers of this blog type "accountable plan" in the Search window.

Three-part housing allowance test:
The amount excluded from the minister’s gross income as a housing allowance is limited to the least of the following:

(a) the amount actually used to provide a home,
(b) the amount officially designated as a housing allowance, or
(c) the fair rental value of the home.
(Sources: IRS Publication 1828; Clergy Housing Allowance Clarification Act of 2002; IRS Regulation Section 1.107-1).

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