The Department of Education recently revamped the Free Application for Federal Student Aid (FAFSA) in order to make it easier to submit, and therefore, make student aid more accessible. They say, “The Better FAFSA is simplified, redesigned, and streamlined. It is faster and easier to fill out, with most students and families completing it in less than 15 minutes.” With its rocky rollout, I’m not sure if their claims are true, but what matters is that the FAFSA is completely different, especially for pastors. As soon as it came out, I started getting people asking me, “Does the new FAFSA include the clergy housing allowance as income?” What Is The FAFSA? If you’re new to this, let me give you a little bit of background. The FAFSA is the form that college students use to apply for government student aid, such as grants, loans, or work study programs. In addition to federal aid, ...

Lately, I’ve seen people recommend that pastors who have paid off their mortgages should take out home equity lines of credit (HELOCs) to extend their housing allowance. The idea is that without a mortgage you cannot claim as much in housing allowance so taking on new debt related to your home will allow you to increase your housing allowance and save on taxes. That is not a good idea. First of all, depending on the interest rate on your HELOC, you may not save any money. Secondly, debt reduces your flexibility and adds greater risk to your financial situation. HELOC Eligibility For Clergy Housing Allowance Finally, and most importantly, debt is only eligible for the clergy housing allowance if it is used for eligible home expenses. Just because a HELOC is tied to your home equity does not mean it automatically qualifies for the housing allowance. As with a cash-out refinance, the debt ...

Lately, I keep getting asked if chaplains at government-owned organizations are eligible for the housing allowance. As I stated in my book on the housing allowance, I was under the impression that government employees other than those in the armed forces are eligible for the housing allowance because on page 9 of IRS Publication 517 it says: However, other sources make it appear that chaplains in government-owned hospitals are not eligible for the housing allowance. Honestly, I’m not really sure anymore. Since I’m not certain about it, in this post I’m going to share the different information sources that I have found.  This is what I’ve got for you: IRS Publication 517 I gave you a screenshot from IRS Publication 517 above. It can be confusing because the same publication also says this: However, that section is talking about the payment of Social Security and Medicare taxes. After further reading, I believe this is unique ...

Pastors who save into their church’s retirement plan are eligible to withdraw some of that money as a tax-free housing allowance in retirement. It’s a great benefit to have. Unfortunately, a lot of church retirement plans have investments with higher fees than are available in IRAs. Because of this, I have been asked multiple times if it is worth it. Does the ability to claim a housing allowance outweigh the cost of the higher fees? As with everything in financial planning, the answer is that it depends. It depends on a lot of things, the primary one being your tax situation. Since the question involves calculations and doesn’t have an easy answer, I asked one of my amazing colleagues, Cal Treichler, to help me out. In addition to being a Certified Financial Planner, Certified Student Loan Planner, and PK, he’s also a spreadsheet whiz. In his free time, he created this ...

This is an excerpt from the book The Pastor’s Wallet Complete Guide to the Clergy Housing Allowance, which is available in paperback and Kindle format on Amazon. Treasury regulations state that, In order to qualify for the exclusion, the home or rental allowance must be provided as remuneration for services which are ordinarily the duties of a minister of the gospel. Another term the IRS commonly uses for “services which are ordinarily the duties of a minister of the gospel” (since that’s way too long) is “ministerial services.” So, as with everything, in order to determine eligibility for the housing allowance, we need to define ministerial services. IRS Publication 517 states that “Ministerial service, in general, is the service you perform in the exercise of your ministry.” Writing this book is the exercise of my God-given ministry. Does that mean I can take a housing allowance? I wish! Luckily, they provide further guidance, since ...

One of the greatest financial benefits available to pastors is the housing allowance exemption. This comes in two forms: the minister’s cash housing allowance and parsonage allowance. These allow “ministers of the gospel” to exempt all of their housing expenses from federal income taxes. That can be worth quite a bit of money, so who are these “ministers of the gospel” that are eligible to take advantage of it? The Bible calls us all to be ministers of the gospel but I don’t think that’s what the IRS has in mind. And “gospel” is a very Christian word but you know the US government would not give special benefits to Christians and not other religions. That would be unconstitutional. So who is eligible for this awesome tax benefit, then? IRS Definition Of A Minister The IRS defines a minister as: Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body ...

Congratulations, you made it to 2024! Whether you triumphantly marched into the new year or skidded in on your knees like me, I hope 2024 turns out to be your best year yet. As I have in most previous years, today I’m offering up a list of the Pastor’s Wallet’s 10 most popular articles in 2023, based on views. If you haven’t had a chance to read these yet, you may want to. How Much Housing Allowance Can A Pastor Claim? The top-performing blog post of the year was the question that gets to the bottom line of one of the biggest financial benefits for pastors. Updated early in 2023, this post offers the basics of what you can actually claim as a clergy housing allowance.  What Expenses Qualify For The Minister’s Housing Allowance? The natural follow-up to the first article’s question, this one goes into more detail on what can actually be claimed as ...

Because of Thanksgiving this week, I wanted to take a break from the usual technical stuff and write a blog post about thankfulness. It’s not something you’ll find in any IRS publication, but it is a financial issue. As I Timothy 6:6-10 says,  But godliness with contentment is great gain. For we brought nothing into the world, and we can take nothing out of it. But if we have food and clothing, we will be content with that. Those who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge people into ruin and destruction. For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs. (NIV) Contentment is a powerful protective covering over our hearts and it originates in thankfulness. As such, thankfulness is ...

We recently went over Form 4361, the IRS document used by pastors to receive an exemption from self-employment taxes. If you’re not familiar with it, you should go back and read about it here. One thing we didn’t discuss in that article, though, was the timing. That’s because I didn’t want to overwhelm you with too much information. So, today we are discussing the timing involved and I will give you multiple examples to make things as clear as possible. It is important that you understand when Form 4361 can be filed because once your window of opportunity is gone, it is gone forever. Is There A Time Limit For Pastors To File Form 4361 To Opt Out Of Social Security? Specific dates are requested on the form because you only have a small window of time in which you are allowed to opt out of Social Security. Form 4361 must be ...

I recently announced that I have obtained the Certified Financial Planner™ designation. As a result, I got a number of responses asking what kind of services I offer as a financial planner. One generous reader even wisely told me, “a more ‘aggressive’ tooting of your own horn would be appropriate.” I hear you. Today I’m going to tell you about what I do beyond this blog, in case you want to be a part of it.  Financial Planning Services I offer financial planning services through Guide Financial Planning. This is a different company than Pastor’s Wallet and I do not own it. Financial planning and investment management is a very highly regulated industry so it requires a different business entity than the educational content I provide through Pastor’s Wallet. I was originally planning on starting my own financial planning firm in order to have complete control over my schedule, who I serve, and how ...