Q: We are about to hire an interim minister of missions and community ministry. The candidate is an ordained minister. As an interim employee hired by the church through the personnel committee, can she claim a portion of her salary as a housing allowance?
Eligibility for a Housing Allowance as an Interim Minister
Yes, an interim minister can request that a portion of her compensation be designated as a housing allowance. However, the following conditions must be met:
- The minister must qualify as a minister under IRS guidelines.
- The minister must be performing ministerial duties as their predominant responsibilities.
Who Qualifies as a Minister for Federal Tax Purposes?
The IRS uses the Tax Court’s “five-factor test,” established in Knight v. Commissioner, 92 TC 199, to determine who qualifies as a minister. A minister for federal tax purposes is someone who has the ability to:
- Administer sacraments;
- Conduct religious worship;
- Have management responsibility in a local church or religious denomination (e.g., control, conduct, or maintenance of a religious organization);
- Demonstrate they are ordained, commissioned, or licensed; and
- Be recognized as a religious leader by their church or denomination.
Of these five factors, only the fourth—being ordained, commissioned, or licensed—is required. The IRS applies a balancing test to the remaining four factors when determining eligibility.
What Are Ministerial Duties?
To qualify for a housing allowance, the minister’s primary duties must include:
- Performing sacerdotal functions (e.g., administering sacraments);
- Conducting religious worship services; or
- Participating in the control, conduct, or maintenance of a religious organization.
These duties confirm that the minister is actively performing responsibilities recognized as ministerial in nature by the IRS.
FAQs About Housing Allowance for Interim Ministers
What is a housing allowance?
A housing allowance is a portion of a minister’s compensation designated for housing-related expenses, such as rent, mortgage payments, and utilities, that can be excluded from taxable income.
Can an interim minister request a housing allowance?
Yes, as long as the minister meets the IRS criteria for a minister and their primary duties involve ministerial responsibilities.
What factors determine ministerial status?
The IRS evaluates eligibility using the Tax Court’s five-factor test, which includes ordination, conducting worship, and other ministerial functions.
Can a housing allowance apply retroactively?
No, housing allowances must be designated prospectively by the church and cannot be applied to past compensation.
Conclusion
An interim minister can receive a housing allowance if they qualify as a minister under IRS guidelines and perform ministerial duties as their predominant responsibilities. Churches should ensure compliance with these requirements when designating housing allowances.
