We just hired a pastor, and he is purchasing a new home with a very large down payment. This will make the cost of his housing higher than his salary. How do we handle that?
A church can only allocate an allowance up to the minister's yearly salary—presuming the minister qualifies for an allowance based on IRS requirements, and the anticipated housing costs represent compensation for ministerial services, go exclusively toward paying housing expenses, and reflect fair rental value of the home (furnished, plus utilities). If a minister's housing expenses are higher than that, it's up to him or her to earn the difference elsewhere. If a minister does so, your church cannot designate more money for the allowance under the presumption that your minister will earn income from other jobs to make up the difference. Let's say your minister earns $15,000 a year with your church, and he anticipates housing expenses of $17,500 for 2017. He cannot earn an additional $2,500 from working 10 hours a week at a coffee shop and have your church designate his housing allowance as $17,500. And those additional funds will be taxed like any other payroll because those earnings are not affiliated with his ministerial work at the church.