Skip to main content

Housing Allowance for Missionaries Without Agency Affiliation

Question:

Are missionaries who raise their own support without affiliation with an agency able to designate a housing allowance and, therefore, exclude it from taxable income?

Answer:

First, in order to qualify for a housing allowance, one has to be properly classified as a minister (see 2015 blog post relating to this topic).

Second, the housing allowance designation needs to be prospectively designated by a 501(c)(3) organization. 

According to the IRS Ministers Audit Technique Guide
“The exclusion under Internal Revenue Code §107 only applies if the employing church [including a mission agency] designates the amount of the parsonage allowance in advance of the tax year. The designation may appear in the minister's employment contract, the church minutes, the church budget, or any other document indicating official action. Treas. Reg. §1.107-1(b).”

The IRS Publication 1828 also states, "The minister’s church or other qualified organization must designate the housing allowance by official action taken in advance of the payment." Missionaries without affiliation with an agency are considered the employees or independent contractors of individual congregations which have authority to designate housing allowances. Accordingly, the churches supporting a missionary who has no agency affiliation may designate housing allowances.

Third, the excludable amount is subject to a three-part test. The lesser of a) the amount actually used to provide a home, (b) the amount officially designated as a housing allowance [in aggregate by the missionary's supporting churches], or (c) the fair rental value of the home is the excludable amount. 

See past MinistryCPA posts regarding this topic: 


Comments

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a...

What you need to know about QuickBooks Desktop changes

  QuickBooks Warning for QB Desktop 2021 :   QB Desktop Pro, Premier, Enterprise, Accountant, & Mac 2021 versions are facing a service discontinuation after May 31, 2024. What this means : You can still use your desktop product but will no longer have access to QuickBooks Desktop Payroll, Desktop Payments, live technical support, Online Backup, Online Banking, and other services through QuickBooks Desktop 2021. QB will not provide security updates after June 1, 2024. The 2021 discontinuation warning is not new, but Intuit’s July 31, 2024 product announcement will change the landscape.   After July 31st – Intuit will only be offering QB Desktop Enterprise for new subscribers. The only entities who will still be able to continue to use their current desktop product’s full functionality and receive security updates will be those who have an existing active subscription by July 31, 2024.   Intuit has publicly stated, “all future innovation will happen in Quick...

Housing Allowance and Form 1099-MISC Reporting

Question: A church provides its minister a housing allowance but believes it must report the full amount of compensation (including the non-taxable housing allowance portion) on Form 1099-MISC in order to demonstrate the full earnings of the minister. (Starting in 2020, Form 1099-MISC is replaced with Form 1099-NEC for non-employee compensation.) If the church reports his compensation, including the housing allowance, on the Form 1099-NEC as taxable income, will he be able to deduct his housing expenses somewhere else on the Form 1040? Answer: This question brings up a couple of issues. First, most ministers are properly classified as employees who receive Form W-2 , not as independent contractors who receive Form 1099-NEC . Box 1 on Form W-2 reports taxable compensation. It is reduced to reflect the church's designation of a portion of his pay as non-taxable housing. Then, in Box 14 (Other), Form W-2 typically reports as a memorandum item his additional non-taxable, housing allowa...