It’s Housing Allowance approval season! Church Boards must approve housing allowances for their clergy annually. For more information or resources about clergy housing allowance, check out our Clergy Housing Allowance Guide below!
What is the clergy housing allowance?
IRS Rules allow ordained, licensed, and commissioned clergy to exclude some expenses related to housing from their gross income for income tax purposes, providing a tax advantage to housing expenses. For those living in a parsonage, this is determined by the fair market rental value of the provided home. For those who rent or own a home independent of the church, expenses include rent, mortgage interest, utilities, and other expenses directly relating to providing a home.
What is the church’s obligation?
In order for the IRS to accept a portion of a minister’s salary as a housing allowance, the primary governing board of the church must approve the housing allowance. It may never be applied retroactively, so updating the housing allowance is a critical step that each church should take at least annually. This is typically done with the calendar year, since the calendar year aligns with the tax year.
But this is where it gets funny… The church has no liability for how the allowance is calculated and does not need to substantiate the calculation, but needs to approve it nonetheless. This means that it is entirely incumbent on your minister to calculate their housing allowance and let your Board know how they would like to split their salary and housing allowance.
When preparing the pastor’s W2, the housing allowance portion should be listed in box 14 on the Form W2. Box 1 should reflect only the non-housing allowance portion of the pastor’s cash compensation.
Limitations & Special Scenarios
- A minister can designate up to 100% of their cash salary as a housing allowance. This scenario is more common for clergy in a part-time call, but is occasionally seen with ministers in full-time settings.
- Housing allowances can never be approved retroactively. You may only approve them from today forward.
- Unless specifically addressed in the approval, housing allowance approvals are assumed to be for one calendar year. For that reason, we highly recommend that you include both an effective date and “approved until otherwise amended” in the language of your motion. Then, if something happens and you forget to approve it for the next year, your minister is still allowed to take what was previously approved.
- Mid-year changes are allowed. These are generally a result of a move, change in compensation, or major life event. Again, you may not make any retroactive changes, but you can approve new housing allowances moving forward.
- This does not extend beyond ordained, licensed, or commissioned ministers. It is not available to non-ministerial staff or ministers’ spouses.
Sample Housing Allowance Worksheet
Your clergy person may use the PBUCC’s housing allowance calculator tool here. Clergy members should work with their tax professionals to ensure that their calculations maximize this benefit in their individual tax situation.
Sample Motion
For a single clergy church
I move that, effective (date), Rev. (minister’s name) compensation be designated as ($$) housing allowance and ($$) salary, and be approved until otherwise amended.
For a multi-clergy church
I move that, effective (date), the following salary and housing allowance divisions for clergy be approved until otherwise amended:
- For Rev. (minister’s name), a housing allowance of ($$) and a salary of ($$).
- For Rev. (minister’s name), a housing allowance of ($$) and a salary of ($$).
Additional Resources
- IRS Publication Topic 417, clergy housing
- Reporting help for ministers
- Information for retired ministers
- A more detailed explanation from Church Law & Tax
You can find this Housing Allowance Approval Guide, plus other helpful docs in our Essential Resources pages on this website!
