Maximizing a Major Tax Benefit for Ministers
It's time to check—and possibly amend—2009 housing allowances.

Background. Ministers do not pay federal income tax on the amount of their compensation that is designated in advance by their employing church as a "housing allowance." But there are limits. For ministers who own their home a housing allowance is nontaxable only to the extent that it is used to pay housing expenses and does not exceed the fair rental value of the home (furnished, plus utilities).

Sometimes ministers incur more housing expenses than they anticipated during the year, which may mean that their housing allowance is not enough to cover all of their housing expenses. Often this is due to unforeseen housing expenses, or to the purchase of a new home. For whatever reason, if a minister's housing expenses exceed the church-designated housing allowance, then the minister may not be receiving the full value of this important tax benefit.

Key Point. Many ministers rent a home or live in a church-owned parsonage. The portion of their ministerial income that is designated in advance by their employing church as a housing allowance is nontaxable in computing federal income taxes to the extent it is used to pay housing expenses. For ministers who rent a home, such expenses include rent, utilities, insurance, and furnishings. For ministers who live in a parsonage, such expenses may include utilities and furnishings (if not paid for by the church). Ministers who rent a home or who live in a parsonage may incur housing expenses in excess of their housing allowance. If so, their employing church should consider amending their housing allowance for the remainder of the year.

Log In For Full Access

Interested in becoming a member? Learn more.

View All
from our store
2020 Church & Clergy Tax Guide

2020 Church & Clergy Tax Guide

Find comprehensive help understanding United States tax laws as they relate to pastors and churches.
12 Law & Tax Guidelines for New Ministers

12 Law & Tax Guidelines for New Ministers

Essential knowledge to ensure legal and financial clarity and integrity in ministry.
20 Finance Questions Churches Ask

20 Finance Questions Churches Ask

Richard Hammar answers relevant tax and finance questions for church leaders.
Essential Guide to Money for Church Boards

Essential Guide to Money for Church Boards

Church board members should have a basic understanding of these financial issues.

ChurchSalary

ChurchSalary

Let ChurchSalary do the work. Get personalized compensation reports for staff and pastors.