This is an excerpt from my book, The Pastor’s Wallet Complete Guide to the Clergy Housing Allowance:
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.
27 Responses
Fred Isaksen
September 13, 2021I am a new pastor who is on total disability and receives a bit under $1200 monthly from SSDI. I am 64 yrs old. I can only make a certain amount of $$ per month or I lose my SSDI and insurance. I receive $2000 per month for housing allowance. I have to contact Soc Sec Disability about the recent new job. How can I set up the money being paid so it isn’t actual income?
Amy
September 13, 2021Fred, while you are working, the housing allowance counts towards your net earnings from self-employment for the sake of SSDI. I am not familiar with any ways to receive money for working without it counting as income.
David Rutledge
September 14, 2021Fred, Amy is correct but what about ministry expenses. Is your ministry being reimbursed?. Reimbursements are not subject to taxable income or SECA tax. Instead of all of the money going to Housing Allowance, could there be an Accountable Reimbursement Plan set up for you? Of course, you would be required to have some qualified expenses
Fred Isaksen
September 14, 2021David- thanks for your insight. What ‘qualified’ expenses are we talking about?
Amy
September 15, 2021Fred, David is referring to an Accountable Reimbursement Plan, which is explained here: https://pastorswallet.com/how-to-set-up-a-church-accountable-plan-to-reimburse-ministry-expenses/
Steve S.
August 23, 2022Amy, to Fred’s point (almost a year later) can a minister receive a housing allowance of let’s use Fred’s figure of $1,200 per month but not receive an official salary (such as a volunteer and not an employee)? Thanks for your feedback.
Sherry
September 27, 2021I am still confused. I’m in a new appointment that began July 1, 2021 and was presented with a compensation package that stated the value of the parsonage, which would be included in determining retirement withholding, etc. This is my first time living in a parsonage and need to buy furnishings, etc. I was told there needs to be something in writing that some amount would be classified as a housing allowance beyond the parsonage value, which would just lower what I pay in taxes. Where and how would that be listed on the W-2? Also, is there a list somewhere of what can be purchased under a housing allowance?
Amy
September 28, 2021Sherry, it is correct that you need to have a designated housing allowance in writing for the housing expenses that you are planning on incurring. That housing allowance will not show up on your W-2 as taxable income. Depending on how your church handles it, it could be in an “informational” box on your W-2 or they may report it to you separately. This article details the eligible expenses: https://pastorswallet.com/what-expenses-qualify-for-the-ministers-housing-allowance/
Christine
October 4, 2021We always include our housing allowance worksheet when we submit our tax forms. Because of this extra sheet of paper, we are having to submit the forms to the IRS through snail mail. Is this the way it is still being done? Does the IRS still require the housing allowance worksheet, or can one just have it handy if or when we are audited? There is no way to file electronically because of this extra included worksheet. Is this correct? Thank you!
Amy
October 8, 2021Christine, you do not need to include the housing allowance worksheet when you file your taxes. All the IRS needs is for the housing allowance to be accurately reported on Schedule SE. I would still recommend retaining the worksheet for your records, though.
Billy Bob
January 21, 2022I receive disability from a ministers Annuity. It has been designated as housing allowance. However, the 1099-MISC I received from them does not show the designation. How do I report this properly?
Amy
January 25, 2022Billy Bob, you may have to attach a schedule to your tax return explaining the discrepancy. I highly recommend working with a tax preparer who understands clergy taxation. If you don’t have one, there is a list at the end of this article: https://pastorswallet.com/the-best-tax-software-for-clergy-your-other-filing-options/
Emmett Fiawoo
March 5, 2023If a pastor is employed and was decided to pay him 18,000 dollars a year and categorized it as Housing allowance for him or the church not to pay taxes. Is this alright with IRS
Evans
January 30, 2022If a pastor only receives housing allowance, does the church still need to file the W-2?
Amy
January 31, 2022Evans, I don’t believe so, but church accounting is beyond my area of expertise so I would recommend you double check with Vickey from freechurchaccounting.com or one of the CPAs listed at the end of this article: https://pastorswallet.com/the-best-tax-software-for-clergy-your-other-filing-options/
Amy
August 19, 2022What if I’m a minister and I own a house with my husband who is not a minister and has a regular job. Do I get to include the full annual mortgage amount of my house and utilities towards housing expenses, or am I limited to claiming half of everything when making the calculation?
Emmett Fiawoo
March 5, 2023If a pastor is employed and was decided to pay him 18,000 dollars a year and categorized it as Housing allowance for him or the church not to pay taxes. Is this alright with IRS
Amy
April 9, 2023Yes, the church can designate up to 100% of the pastor’s income as housing allowance. The pastor just needs to have actual expenses to justify the amount.
David Rutledge
March 5, 2023A qualified minister (ordained, commissioned or licensed) may have a percentage of the minister salary designated as housing allowance. It would income tax, tax free to the extent it is spent on housing. Any portion not spent on housing would become taxable income. If the minister has not opted out of Social Security for ministry purposes, all of the money would be subject to S. S. – self employment tax
David Rutledge
March 5, 2023The church could report the housing in box 14 of the tax return but it is not required. I think it is better for the church to give the pastor a letter telling the minister how much the housing was for the year. If the amount is in box 14 and the minister gets audited by the IRS, the IRS auditor will probably ask about the number and the pastor will say it is tax free income, housing, & the auditor will start digging
Mark
January 31, 2024Howdy y’all!
We operate a religious nonprofit ministry that works in missions around the world (even though we are fairly new and small).
We have (1) staff minister position who represents us in any needed ministry capacities. He does not receive any salary but he DOES receive some housing allowance (relatively small).
Do we need to report anything to the IRS? He has $000 of income and only the housing allowance. So I think we have no reason to even to send out the form (to him or the IRS).
I can see all of the above info and that a church can just write a letter to the person stating the total amount of housing allowance that was recorded.
Anyways… I think the biggest question here is this – “Is a religious nonprofit organization under the same structure/rules as a church regarding housing allowance?”. OR is a religious nonprofit under different rules? (We were previously part of a much larger organization as missionaries and received housing allowance but also had a salary (one place was w-2 and the other 1099).
Thanks in advance!
Amy
February 1, 2024Yes, the same rules apply. If you are only paying a housing allowance, you are not required to report anything to the IRS. However, you do need to report that number to your minister. If the minister has not opted out of Social Security, then he needs to pay Social Security & Medicare taxes on the housing allowance with Schedule SE.
sal
February 3, 2024Hi I worked for a church in 2023 and got paid 14k. Now, I work in a different church and got paid 16k in 2023.
My housing allowance is 30k..
as i understand I will not be paying taxes.
The first church sent me a 1099-nec though for 14k and recorded in box 1.
What do i do? is that correct? should bthey be giving me another form?
How will irs know that this is a housing allowance… ?
sal
February 3, 2024should i be getting from them 1099-R?
Amy
February 12, 2024Sal, if the church considered you an independent contractor, then Form 1099-NEC is the correct one, not 1099-R. However, if the church controlled what you did and how you did it, then you should be classified as an employee and not an independent contractor. For the housing allowance, the church is the one that must designate it so they should not have reported it to the IRS as taxable income.
sal
February 13, 2024I am an employee. They fixed the 1099-nec as 0$. Do i have to report this form or i dont like i dont report any of housing allowance and I opted out of ss.
Amy
February 14, 2024If the 1099 shows $0, then there’s nothing to report.