Many churches do not limit housing allowances to a particular calendar year. For example, if a church intends to designate $12,000 of its senior pastor’s salary in 2014 as a housing allowance, its designation could state that the allowance is effective for calendar year 2014 and all future years unless otherwise provided. This clause may protect the pastor in the event that the board neglects to designate an allowance prior to the beginning of a future year. But note that this “indefinite” approach has never been considered or approved by the IRS or any court.
A church also would be wise to have a “safety net” designation to cover midyear changes in personnel, delayed designations, and other unexpected contingencies. To illustrate, such a designation could simply state that a specified percentage (i.e., 40 percent) of the compensation of all ministers on staff, regardless of when hired, is designated as a housing allowance for the current year and all future years, unless otherwise specifically provided.
Such safety net designations, like the “indefinite” resolution described above, should not be used as a substitute for annual housing allowance designations for each minister on staff. They are simply a means of protecting ministers against inadvertent failures by the church board to designate a timely housing allowance.
Key point. Churches should consider adopting a “safety net” allowance to protect against the loss of this significant tax benefit due to the inadvertent failure by the church to designate a timely allowance.