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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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Housing Allowance when Bartering for Rent Payments

Question:

If a minister rents his principal residence, but he performs services (mowing the lawn, repairing the roof, etc.) in lieu of rent, can he still qualify the rent amount for a housing allowance tax benefit?

Answer:

Of course, bartering income is taxable. The Internal Revenue Code interprets that above situation as follows: tenant/minister receives taxable income for the fair market value of the services he provides, andtenant/minster pays landlord for renal of residence. The minister in this case reports taxable income for services provided in lieu of rent. It is also likely subject to self-employment tax. He may then claim as qualifying housing allowance expense equal to the amount he "pays" for rent of his personal residence. Essentially, there is no difference than if the minister and his landlord simply traded checks.

See a past MinistryCPA post regarding this topic: http://ministrycpa.blogspot.com/2016/09/services-to-church-in-lieu-of-rent-of.html

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A church group went on a two-week mission trip, and a few of the members stayed an additional two weeks for personal time. Will the members who stayed the two additional weeks be able to deduct expenses from the trip?

Answer:

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Question:

Should 403(b) contributions and the subsequent match be based on the pastor's total income from the church (including housing allowance) or just from the salary minus housing allowance?

Answer:

According to Richard R. Hammar, J.D., LL.M., CPA, in his book 2015 Church & Clergy Tax Guide, “Section 107 of the tax code specifies that a minister’s housing allowance (or the annual rental value of a parsonage) is not included in the minister’s gross income for income tax reporting purposes. Therefore, it would appear that the definition of includible compensation for purposes of computing the limit on annual additions to a 403(b) plan would not include the portion of a minister’s housing allowance that is excludable from gross income." 

Hammar's Church Law and Tax Report is an excellent resource that many ministries should consider as annual subscribers.