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What is a housing allowance?

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       What should I do for a housing allowance? 


             Good! You’ve heard about it. For a long time, ministers have been able to live in a church parsonage without paying income tax on the benefit (except for state income tax purposes in Pennsylvania). But you do owe the 15.3% SECA tax on its fair rental value, just not income tax. The same is true if you are purchasing or renting your own home. The amount of cash income you can exclude in those cases is the lowest of three amounts: 1) The amount of your cash compensation that your employer designates as housing (in lieu of providing you a parsonage to live in), 2) the amount you actually spend for housing, just not food or servants (it’s a very old rule), and 3) the fair rental value of your home, plus the cost of your utilities. It almost all cases, we recommend that you “guess high.” You never know what surprises might come in terms of your housing expenses. And if you don’t spend as much as was designated by your employer, then you add the unused portion back to your income on Form 1040. It’s rare, but young families with children and low income can “overcook” their housing allowance designation requests. Get advice in these situations.  


This excerpt is a portion of our top 10 list for new ministers. If you would like to see all of the frequently asked questions ministers have you can visit this link. 




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