Q: Our minister would like the church to increase his housing allowance due to the fact that he will be incurring more housing expenses than expected this year. Can our church board amend the allowance for the rest of the year, or must he wait until next year?
Ministers do not pay federal income tax on the amount of their compensation designated in advance by their employing church as a “housing allowance.”
But there are limits.
For ministers who own or rent their home, a housing allowance is nontaxable only to the extent that it represents compensation for ministerial services, 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. This may mean that their housing allowance is not enough to cover all of their housing expenses. Possible reasons for why this happens include unforeseen housing expenses or the purchase of a new home.
Learn more about parsonage and housing allowances in chapter 6 of Church Law & Tax’s annual Church & Clergy Tax Guide.
Whatever the reason, if a minister’s housing expenses exceed the church-designated housing allowance for the year, but still do not exceed the fair rental value of the home (furnished, plus utilities), then the minister may not be receiving the full value of this important tax benefit.
Amending an allowance the right way
To help your minister facing a situation like this, your church can amend the housing allowance. When your church does this, it must pay attention to the following rules:
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Proper authorization. Be sure the amended housing allowance is authorized by the same group (usually the church board or congregation) that designated the original housing allowance.
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In writing. Be sure the amendment is duly recorded in the minutes of the group that approves it. The minutes should be dated, and recorded at or shortly after the meeting in which the amendment is approved.
Prospective application. An amended housing allowance only operates “prospectively.” That is, it takes effect on the date it is approved, through the rest of the year. It cannot apply retroactively. To illustrate, a minister’s housing expenses turn out to be $15,000 for 2024, but the housing allowance designated by the church was only $10,000. In December of 2024 the minister asks the church board to retroactively increase the housing allowance for 2024 to $15,000. This cannot be done.
