One of the greatest financial benefits available to pastors is the ministerial housing allowance. Unfortunately, it is also one of the most misunderstood aspects of a pastor’s finances. Most pastors are aware of its existence and benefits but still have questions, like:

Who is eligible to claim a ministerial housing allowance?

How much housing allowance can a pastor claim?

How do you calculate a housing allowance?

If you want to know the answer to any of those questions, just click on the link. Today’s article discusses one of the biggest fallacies of the housing allowance, that you can only claim a parsonage or cash allowance, but not both.

The Difference Between The Parsonage & Cash Housing Allowance

The ministerial housing allowance is a way for ordained, licensed, or commissioned religious leaders to avoid paying federal income taxes on their housing expenses. It only applies to federal income taxes and not Social Security and Medicare taxes.

The housing allowance appears in two different forms; the parsonage allowance and the cash housing allowance. The parsonage allowance is for those who live in a church-provided parsonage and covers the cost of the parsonage (and any utilities or furnishings provided by the church). The cash housing allowance covers all other qualified housing expenses. 

Typical Pastoral Housing Expenses

If you think about it, you have a lot of housing expenses beyond just your rent or mortgage payment. There are utilities, furnishings, equipment necessary to maintain the home like lawnmowers and snow shovels, and the list could go on and on. All of these things are eligible for the ministerial housing allowance.

A number of churches provide their pastor with a parsonage. Some of them even pay the utilities or provide furnishings. However, few churches cover all of the expenses related to providing and maintaining the home. It just isn’t practical. Because ministers that live in parsonages often pay for other housing expenses out of pocket, it is possible to be eligible for both a parsonage allowance and a cash housing allowance. 

Both kinds of housing allowance need to be available to keep things fair. If a pastor had to choose only one or the other, then some pastors who live in parsonages would end up paying income taxes on the money they spend on utilities while those without parsonages would get them tax-free. That isn’t very fair, is it?

No Double Dipping

Thus, it is possible and entirely legal to claim both a parsonage allowance and a cash housing allowance. You just can’t claim both for the same expenses. That would be illegal.

Anything your church pays for is covered under the parsonage allowance. This would include the fair market rental value of the parsonage and any utilities or other expenses the church covers. 

Anything that you pay for out-of-pocket is covered under the cash housing allowance. Every expense must be assigned to one or the other, never both. If you try to claim a cash housing allowance for something that your church pays for, that is tax evasion and you’ll end up in big trouble with the IRS. Don’t do it.

How To Request A Cash Housing Allowance

A lot of ministers who live in parsonages don’t realize that they can also be eligible for a cash housing allowance as well. If that’s you, this is your lucky day! You can request a cash housing allowance today and keep more of your money in your own pockets instead of giving it to the IRS. 

Requesting a cash allowance is simple. All you have to do is:

1. Calculate your estimated out-of-pocket expenses for the coming year.
2. Request that your church officially designates that amount as a cash housing allowance for 2020.
3. Track your expenses throughout the year. 

For more information on requesting the cash housing allowance, read this article. For help calculating your anticipated expenses, read this article. If you have any other questions, ask them in the comments or email me!