Board Approval
- Ministers may exclude a designated portion of their income as a housing allowance from federal income taxes—provided it compensates ministerial services.
- The church board (or governing body) must determine eligibility and formally approve the allowance before the calendar year begins or prior to the minister’s start date.
- If a minister is hired mid-year or the allowance was overlooked, it can still be approved—but only prospectively, not retroactively.
Put It in Writing
- Document the housing allowance in a board resolution and include it in the official meeting minutes.
- Avoid verbal agreements—the IRS requires written authorization.
Plan Ahead
- Housing allowances cannot be applied retroactively. If missed, the minister loses the tax benefit for the gap period.
- Consider adding temporary safety net language to prevent lapses, but this should not replace annual approvals.
Estimate Costs
- Encourage ministers to track housing expenses to ensure future allowance amounts are accurate and sufficient.
Keep Records
- Ministers must maintain detailed receipts and documentation of housing expenses.
- The church is not required to collect these records, but the IRS may audit the minister.
Annual Review
- The board should review and reapprove the housing allowance each year—even if the amount remains unchanged.
- Mid-year amendments are allowed if circumstances change.
Multiple Allowances
- Ministers serving multiple churches or organizations may receive separate housing allowances from each.
- Each entity must ensure its allowance complies with IRS limits.
Retired Ministers
- Pensions board may designate a portion of a retired minister’s pension distributions as housing allowance.
Original content by clergyfinancial.com. This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.
