How a Housing Allowance Works on Minister Taxes

Ministers provide an array of services for members of their churches as well as for their communities. Many believe that ministers are under-compensated for the selfless work that they provide and as a result the IRS has given clergymen certain tax-exempt benefits on their taxes including a tax-exempt housing allowance. All expenses for housing including furniture and maintenance can be legally deducted as long as ministers plan accordingly in advance and provide the IRS with detailed and adequate record-keeping. And while minister taxes allow for a housing allowance that is exempt from federal and state income taxes, it is still subject to self-employment taxes.

For a minister to be eligible for a housing allowance they must be “duly ordained, commissioned, or a licensed minister of a church” according to IRS regulations. This means they must have attained credentials from a religious institution. A minister is one who conducts services administers sacraments and maintains a legal organization, seminary faculty also qualify. 

When it comes to minister taxes, ministers are allowed to claim all housing expenses which includes a vast array of potential costs including mortgage or rent, insurance premiums, property taxes, utilities, furnishings, landscaping, tools, repairs, remodeling, cleaning supplies and just about anything else used to maintain or furnish their residence.

To qualify, a minister’s housing allowance must be set once per year and recorded in any official minutes of a church’s advisory body. Any amount can be claimed up to 100 percent of a minister’s salary. Tax professionals recommend setting a housing allowance at a greater amount that what a minister actually estimates using. Then when tax time rolls around and the entire housing allowance has not been used, you can pay income tax on the difference.

The IRS requires proof of claimed housing expenses by way of receipts, mortgage statements, rental records, store receipts, etc. The IRS requests a total amount of expenses and although it’s not necessary to itemize expenses, it is necessary to have documented proof of each expense.

Housing allowances are typically reported to the IRS on form W-2 from the church and it must include any unused portion of a housing allowance under wages and salaries on Form 1040. On minister taxes, in addition to claiming mortgage interest and property taxes as part of their housing allowance, they can also deduct these items from their income taxes as well.

Clergy finance can be a tricky subject with a variety of potential deductions. Make sure to work with a tax professional to ensure that you’re getting the benefits allowed to you as a minister.

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Sarah Wozniak

Staff Writer, Page1 Online Marketing

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