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Pastor's Mid-year Resignation Effect on his Annual Housing Allowance


Question:

Every December, a church designates its pastor's next year's housing allowance. Its pastor resigned during the year to pursue other employment. How should his annual designated housing allowance be assigned to part-year compensation?

Answer:

To our knowledge, there is no specific guidance available in IRS regulations or rulings or in court case records to authoritatively clarify this reporting. It seems appropriate, however, that the annual housing allowance should simply be prorated over the time he was employed by the church. This situation does demonstrate the potential wisdom of documenting housing allowance as a monthly amount since mid-year turnover in the office of a pastor is not an uncommon event.

A pastor contemplating an earlier departure may wish to declare (or request) in advance that his housing allowance be increased immediately for the remainder of his service.

The minister's church or other qualified organization must designate the house allowance pursuant to official action taken in advance of the payment. A new designation must be made prospectively, not retrospectively. In other words, the pastor can request a new housing allowance designation only on the remaining pay periods of his employment.

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