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 constituting a church or church denomination. Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination. 

If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes. 

As you can see, there are two main components to being a minister eligible for the housing allowance. You have to have the right authority and participate in the right activities. Let’s break those down for more clarity:

You Need The Necessary Authority

You must be ordained, commissioned, or licensed and it has to be by a religious body constituting a church or church denomination. However, the law does not spell out what constitutes a church or denomination. Rather, our definitions are based on case law, or previous court rulings.

There are two things that have been established as the bare minimum for something to be called a church:

1. A body of believers or communicants
   
   
2. The body of believers assembles regularly in order to worship
   
   

On top of that, assembling to worship must be the main purpose of the body of believers. Because of this, schools that have chapel services do not qualify because their purpose is educational and their worship services are incidental. Also, faith-based companies that have regular Bible studies or devotionals for their employees do not qualify because their purpose is business and their religious gatherings are incidental.

Once you determine that your church or denomination qualifies, you have to make sure the position they have given you qualifies. You must be “ordained, commissioned, or licensed.” If you have the same authority as someone with one of those titles but lack the title, you could argue that you are eligible for the housing allowance. Jewish cantors did and won the right to claim a housing allowance.

You Need To Provide Pastoral Services

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.

Just having the right title is not enough to qualify you for the housing allowance exemption. It must be given to you in exchange for your services which are ordinarily the duties of a minister of the gospel, or simply “ministerial services” as the IRS often refers to them.

If you’re a pastor in a church, what the IRS wants to see is that you do things like baptize people, perform weddings, administer communion, and run church services. Things that not just anyone in the church is allowed to do. 

The IRS doesn’t get into a lot of specifics about it because different religions vary greatly. They do, however, state that ministers of music or education and those who serve in administrative or other functions who aren’t authorized to perform substantially all of the religious duties of an ordained minister in your church (even if commissioned as a minister of the gospel) are not eligible to take a housing allowance. 

There are some other positions that qualify as providing ministerial services besides just being a traditional pastor:

• Workers in Religious Organizations. You must have a leadership or key role in an organization that is under the authority of a church or denomination and exists to carry out the tenets and principles of the faith. An example would be a denominational missions board or religious society.
  
  
• Pastors in Secular Settings. If you do the duties of a pastor but outside the church in a secular setting, that still qualifies. An example of this would be a campus minister.
  
  
• Chaplains. Chaplains in church-related or nonprofit health and welfare institutions are eligible for the housing allowance. Chaplains in government-owned hospitals or with the US military are not eligible because they are said to be functioning as government employees and not ministers.
  
  
• Church Assigned Positions. Even if you aren’t performing typical pastoral duties and you aren’t working for a religious organization, if you were directed by your church to take the position, it can count as ministerial services. The services must be assigned or designated by the church to qualify. 
  
  
• Work in a Religious School. Administrative duties and teaching responsibilities in a church school, college, or university qualify as ministerial services for the sake of the pastoral housing allowance. The key is that it must be a religious school.
  
  
• Traveling Evangelists. Traveling evangelists who are ordained ministers are eligible to take a housing allowance from the money given to them by churches located away from their community as long as it is designated in advance in writing and used to maintain a permanent home. 
  
  
• Missionaries. Missionaries are eligible for the housing allowance just as pastors are.
  
  

So, to be eligible to claim a ministerial housing allowance you need to have been given authority by a qualifying religious body and you need to receive it in exchange for pastoral services that you provide. 

Don’t forget to check out our Housing Allowance Calculator and Housing Allowance Book!