I am a new pastor and have heard that I can have a housing allowance for the home I am presently buying. What do I need to do to ensure I receive the proper benefits allowed?
Code Section 107 provides for the clergy to have a qualified housing allowance. Anything designated as a housing allowance is excluded from income for income tax purposes but not for self-employment tax purposes.
A housing allowance must be designated in advance of payment by the church in which you are employed. This can be done by the church board in a qualified board meeting. A minister cannot designate his own housing allowance. This can be an annual designation for a fixed designated amount.
If the minister does not receive or use all the amount authorized, he does not have to pay self-employment tax on the unused portion. However, if the pastor received more from the church than he actually used for housing expenses, the difference is considered as taxable income for income tax purposes.
A housing allowance can include the house payment or rent, utilities, repairs and maintenance, insurance, taxes, lawn maintenance, appliances and furniture (purchase and repair), maintenance items for the home, and the down payment for the purchase of the home.
To qualify for the housing allowance, the minister must be licensed, ordained or commissions, perform ministerial services (pulpit ministry, perform baptism and weddings), receive money from the church, and actually be employed by the church.
If and when the minister receives the housing allowance, it is excluded for income tax purposes; however, it must be included on Schedule SE for self-employment tax purposes. There is an exception if the minister is personally exempt from self-employment tax by having an approved Form 4361 on file.