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Housing Allowance for Ministers Employed in Parachurch Organizations

Question:

Can an ordained minister who once worked for a church and now works for a non-profit receive a housing allowance from the non-profit?

Answer:

"To qualify for the special tax provisions available to ministers, an individual must be a 1) “minister” and 2) must perform services “in the exercise of his ministry” (our emphasis). This quote begins an important section in the Minister's Audit Technique Guide on the Internal Revenue Service website.

Our experience has been that each parachurch organization and its employees offer unique twists on the interpretation of the above two-part test. Individuals and organizations faced with these important classifications are best advised to seek professional assistance. Ministries interested in a personal consultation with us should post a blog inquiry to which we can respond.

Several good blog postings on the definition of a minister are provided below. Readers should follow the links provided to read the blog postings or read the Minister Audit Technique Guide section entitled "Who Qualifies for Special Tax Treatment as a Minister." (link above) to learn more about who qualifies as a minister of the gospel.

Definition of a Minister

Director of Christian Education: Is He a Minister?

Christian School Teachers as Ministers

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Review: Form 1099 Payments to 501(c)(3) Organizations

Question:

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Answer:

We have written similar blog posts on this topic in the past (listed below), but we figured it was a good time for a review. 

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Form 1099 for Payments to Other Ministries
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Question:

A church provides its minister a housing allowance, but for other purposes it believes that it must report the full amount of compensation (including the non-taxable housing allowance portion) on Form 1099-MISC (in order to demonstrate the full earnings of the minister). If the church reports his compensation,including the housing allowance, on Form 1099-MISC as taxable income, will he be able to deduct his housing expenses somewhere else on the Form 1040?

Answer:

This questions brings up a couple of issues. First, most ministers are properly classified as employees who receive Form W-2, not as independent contractors who receive Form 1099-MISC. On Form W-2, Box 1 for taxable compensation is reduced reflecting the church's designation of a portion of his pay as non-taxable. Then in Box 14, it typically reports as a memorandum item his additional non-taxable, housing allowance compensation. In the situation addressed in the question, this Form W-2 reporting may or may not a…

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Answer:

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