Clergy taxes are incredibly unique in a complex tax system, so it can be hard to find a tax preparer who actually understands how they work. I’m always getting requests for referrals, so I turned to my readers for help. These are the tax preparers that my readers have recommended. I have not personally worked with any of them and have done no research or due diligence, but they each have at least one happy pastor client.
The only way to get on this list is to be referred by a client. If you are a tax preparer that wants to be on this list, have one of your clients reach out to me. Also, if you reach out to someone on the list and find that they are no longer serving pastors, please let me know and I will update it.
The church is not required to report the housing allowance to the IRS. Unless a church includes it in an informational section on Form W-2, the IRS and the Social Security Administration (SSA) are only made aware of the housing allowance when a minister files Schedule SE to pay Social Security taxes under SECA.
Form W-2
You should review your Form W-2 that you receive every year to make sure your church prepared it correctly. Many church treasurers and bookkeepers have received absolutely zero training, they’re just doing it because they’re not good at saying no. So, make sure to double check. This is what it should look like:
Box 1
Wages excluding housing allowance. This is what the church reports to the IRS as your income. The housing allowance is exempt from income and should therefore not be reported here. If it is, the IRS will think you owe more in taxes and you will have a mess on your hands. If your church accidentally includes your housing allowance in Box 1, have them correct the mistake right away by filing an amended Form W-2.
Boxes 3, 4, 5, and 6
These boxes are for Social Security and Medicare and, regardless of the housing allowance, should be blank. That is because ministers are considered self-employed for Social Security purposes as we discussed already. It was in that exciting SECA/FICA excursus that you probably skipped. Don’t worry about it, it’s boring stuff, you can just take my word for it.
Again, your income is not reported for Social Security and Medicare purposes on Form W-2 and churches are not supposed to withhold payroll taxes for you. Rather, you have to calculate your own Social Security and Medicare tax payments on Schedule SE and file it with your tax return.
Box 14
Box 14 is for informational purposes only. As such, your church is allowed to use it to report the amount designated as a cash housing allowance. However, this is not required and some churches report it in other ways. If there is nothing in your Box 14, then you should expect other communication from your church regarding your housing allowance amount.
Box 16
Box 16 is for state wages and would be filled out as per your state’s laws.
Non-Employee Ministers
Ministers who are not employed by a specific church, such as traveling evangelists, will not receive a W-2. Rather, you may receive a Form 1099-NEC (Form 1099-MISC for tax years prior to 2020). Any church that has paid you over $600 in a year is required to issue you one. For them to be able to do so, you will need to submit Form W-9 to them prior to providing your services. Form W-9 simply contains the basic information they will need to be able to report your income to the IRS.
The $600 trigger does not include a housing allowance that was properly designated in advance, reimbursed expenses, or contributions to a 403(b). Thus, if you claim all of your income from a specific church as a housing allowance, they aren’t required to give you anything to show for it. It is up to you to track the income you receive from various churches and how much of it is eligible for the housing allowance.
Form 1099-R For Pension Distributions
Under certain circumstances, you may be able to claim a ministerial housing allowance even during retirement. The next chapter will discuss this in detail.
If you take a housing allowance during retirement, you will receive a 1099-R instead of a W-2. Your housing allowance may or may not be listed on the 1099-R. The form may just say “Taxable Amount Not Determined,” meaning that you have to decide which portion is taxable and which isn’t. If it is listed as a taxable distribution, you can still take it tax-free by including the housing allowance amount on line 4 of Form 1040. (Prior to 2018 it was on line 16.)
Housing Allowance Amount
Your church treasurer is responsible for providing you the amount of your annual housing allowance in writing at the end of the year. If you haven’t gotten one, try bringing the treasurer homemade brownies. They can really work wonders. A copy of the notification should also be kept in the church’s files.
Notification can simply be a letter stating something along the lines of, “Your designated cash housing allowance for 2018 was $…” This letter goes to the pastor and not to the IRS. It is for informational purposes only. It is not attached to the pastor’s tax return that is sent to the IRS, either. You’ll have plenty of other papers to send them, so keep this one for yourself.
Also, as mentioned above, the housing allowance amount can be included in Box 14 on Form W-2. Box 14 is an informational box that employers use to report various kinds of information to employees, such as retirement contributions and housing allowance. Box 14 would simply say something like, “Housing: 18,000.” If it is included on Form W-2 then it has been reported to the IRS.
You will need this information to fill out Schedule SE and pay your SECA taxes.
Your church will report to you the amount paid as a cash housing allowance. However, if you live in a parsonage it is your responsibility to calculate the fair market rental value and include it on Schedule SE. Since you are the one receiving the tax benefit, it is your responsibility to do the calculations, not your church’s. Go back to the last chapter to learn about how to calculate the fair market rental value of a home.
Housing Expense Records
It is your responsibility as a pastor to track your housing expenses. Your church has no responsibility in this area beyond designating the housing allowance. If you claim an erroneous amount or don’t have the records to back up your claims, it is all on you and has nothing to do with the church.
In fact, it’s really none of their business how you use the housing allowance. That’s between you and the IRS. There is no need for you to submit your itemized expenses to the church or share them in any way. They are confidential.
Some churches have curious board members, but you can let them know that there is nothing in the law that requires them to know how you are spending your housing allowance. Just be nice about it, because they’re the ones that have to designate a housing allowance for you in the first place! If it doesn’t go over very well, go ahead and take them some brownies, too.
As you can see, it is important that you keep your own records. Make sure to keep receipts, mortgage statements, and any other evidence that supports your claim of a housing allowance. These will come in handy if you ever get questioned by the IRS. In an audit, the thicker the paper trail, the better. Digital “paper trails” also work well.
