Self-Employment Tax on Housing Allowance

Question:

Is a minister's housing allowance included in his calculating of self-employment tax?

Answer:

Yes, a minister's housing allowance is included in the computation of Self-Employment tax.

The calculation for self-employment income on Schedule SE is as follows:
ADD: Cash compensation to minister
ADD: Housing allowance (or fair rental value of parsonage)
SUBTRACT: Form 2106 expenses

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Rental of a Church Parsonage to a Non-Minister

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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...

MinistryCPA - Corey A. Pfaffe, CPA, LLC

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