July 22, 2012

Housing Allowance Designation of IRC 403(b) Distributions

Question:

Are Internal Revenue Code 403(b) distributions (to a minister over the age of 59 ½) that are designated as housing allowance in excess of housings costs subject to self-employment tax, or are they only subject to income tax as regular income?

Answer:

If a minister owns a home, 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.

As with virtually all retirement plan distributions, no self-employment tax is due on 403(b) distributions.

The members of my Federal Taxation I class at Maranatha Baptist Bible College in Watertown, Wisconsin have taken on the challenge of study and research to answer posted questions. Mariya Bondarenko of Minnesota gets credit for this one.

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