September 20, 2016

Services to a Church in Lieu of Rent of Church Parsonage: Bartering

Question:

A church member rents the church parsonage for $1,000 per month. But in lieu of paying rent, he performs services for the church.
1.) Should the church report his earnings on a Form W-2?
2.) Is the church's tax-exempt status affected by the renting of the parsonage to a non-staff member?

Answer: 

The renter must include the $1,000 dollars per month as taxable income, and the church should issue him a Form 1099-MISC if he is an independent contractor or Form W-2 if he is an employee (likely also subject to FICA tax).

The major issue is not that the church will lose its overall tax-exempt status, but that it may lose the real estate tax-free status of the parsonage being rented to a non-staff member. The situation here relates to bartering for services actually performed as a part-time employee of the church, so the concern may be unwarranted.

For information regarding the effect on tax exempt status follow the link below:


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