28 Jul What Is a Clergy Housing Allowance?
The Clergy Housing Allowance is a portion of a Minister’s pay that has been designated to pay housing expenses. It is considered one of the best tax benefits currently available to Clergy because this portion of income can potentially be exempt from income taxes.
In order to determine how much of the Clergy Housing Allowance can be excluded from income taxes, three categories must be considered:
- The amount designated as a housing allowance
- The amount actually spent on housing expenses for their primary home
- The fair rental value of the home, including utilities and furnishings for the year
Internal Revenue Code Section 107 states that the amount that can be excluded from income tax is equal to the lesser of these three categories. For example, if Pastor Al had $30,000 designated as housing out of his pay, spent $10,000 on housing expenses, and had a fair rental value of $40,000. $10,000 is the lesser of the three. He can exclude $10,000 from income tax calculations. The rest is added when calculating income tax.
Keep in mind, the Clergy Housing Allowance has no impact on self-employment taxes. It must be included when calculating the amount of your self-employment taxes.
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.