February 21, 2014

Housing Allowance for Independent Contractor

A question related to a previous post:

As an ordained minister, I spent 20 years working for a parachurch organization which designated a housing allowance for me. in 2012, my full-time position was eliminated, but I have continued to consult as an independent contractor for the organization. I received Form 1099-MISC rather than a W-2 for my 2013 compensation. Am I still eligible to claim a housing allowance? If so, what documentation will I need?

Answer:

Housing allowance rules are identical for independent contractors and W-2 employees, so your eligibility for a housing allowance remains the same. However, the organization must designate a portion of your ministerial compensation as housing allowance in order for you to be able to claim any amount, based on the following three-part test from the IRS

You can report as housing allowance the lesser of three amounts:
  • Actual housing expenses, plus utilities
  • Fair rental value of the property, plus utilities
  • Amount of cash compensation designated as housing allowance by your employer
If no designation has been made, you cannot claim a housing allowance exclusion. Also, the designation must be made prior to the payment of compensation; it cannot be a retroactive designation.

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