Can We Amend the Pastor's Housing Allowance?
A change is allowed, but note one important limitation.

Q: Our church designates, in writing, a housing allowance for our pastor on an annual basis (usually late November for the upcoming fiscal year–for example in November 2011 we submitted our proposed budget for 2012).

We now have a member who wants to modify the pastor's housing allowance and give the pastor an additional amount and designate it as the 2012 housing allowance. He referenced an auditor from a tax service about this issue and was told there would be no problem (tax wise) if our church decided to "adjust" the pastor's housing allowance in October for fiscal year 2012.

If we record this action in our business meeting minutes for October 2012 and increase the housing allowance for 2012 (about double the designated amount), are we within the tax laws?

A: Rich Hammar addresses this question in the Church & Clergy Tax Guide:

While neither the IRS nor the courts have addressed this question, it seems perfectly reasonable to conclude that the church can amend its housing allowance designation during the course of the year if changed circumstances render the allowance inadequate. Of course, any change would only operate prospectively.

In other writing on this subject, Rich repeatedly notes that any change to an allowance cannot be applied retroactively (only prospectively, as he notes above). Based on your question, it appears your church uses a fiscal calendar year that runs January to December. Your proposed adjustment in October would apply for the months of October, November, and December; everything prior to October (January to September) would operate under the original housing allowance amount set heading into the fiscal year.

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Displaying 1–4 of 4 comments

Bob Kitchen

January 28, 2015  2:53pm

All comments on interim adjustment of housing allowance upward prospectively, but nothing about interim and prospective downward adjustment.

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September 28, 2012  1:08pm

Grover–The question posed here is fully answered here. A church can amend the pastor's housing allowance in the middle of the year (including 2012). It can only be changed prospectively (not retroactively), as Rich's answer above explains.

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Grover Mixon

September 28, 2012  1:02pm

The answer to your question is no - you can't change the pastors Housing Allowance for 2012. Now for "the rest of the story" read CFT's response about what you can change and how to change it. Sometimes I think CFT does not answer the question directly as it should.

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Mark Adams

September 04, 2012  10:46am

Is the same true in changing the fair market value for parsonage use and parsonage utilities?

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