Second, the post retirement support is compensation. The compensation should be reported on a Form 1099-MISC unless he is still considered to be an employee who should therefore receive Form W-2.
This is the "bad news." However, let's revisit a blog post we provided in 2009.
"A retired minister may receive part of his or her pension benefits as a designated parsonage allowance based on past services. Trustees of a minister’s retirement plan may designate a portion of each pension distribution as a parsonage allowance excludible under IRC § 107. (Rev. Rul. 63-156, 1963-2 C.B. 79, and Rev. Rul. 75-22, 1975-1, C.B. 49)
"The retired minister may exclude from his/her net earnings from self-employment the rental value of the parsonage or the parsonage allowance received after retirement. The entire amount of parsonage allowance received is excludible from net earnings from self employment, even if a portion of it is not excludible for income tax purposes. In addition, the retired minister may exclude from net earnings from self-employment any retirement benefits received from a church plan. Rev. Rul. 58-359, 1958-2 C.B. 422."
The church should consider cooperating with the retiring minister to designate these ongoing payments as housing allowance. It has the potential to reduce his tax bite significantly.
The IRS Minister Audit Technique Guide published in April 2009 may provide some tax planning reminders (and IRS authority to back it up!).