August 16, 2013

Housing Allowance Designations by Multiple Employers

Question:

If a new missionary on deputation is also working part-time in his church, can he receive a housing allowance from both organizations?

Answer:

Yes, this is legal under IRS guidelines and, in most circumstances, wise tax planning. There is no danger in excessive avoidance of tax because of the three-part test defined by the IRS for computing taxation of housing allowance, defined in a previous blog post.

IRS Filing by Church if no Taxable Compensation is Paid

If the combined housing allowance designations are higher than actual housing expenses or the fair rental value plus utilities, the excess will be taxed as regular compensation. Based on this, excess housing allowance designation is generally preferable to too little.
 
Note: In limited situations, ministers are ill-advised to claim a substantial housing allowance. Readers should consult their tax adviser to ensure that they avoid these consequences.

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