2020 is almost here! December is a great time of year to update your housing allowance for the following year. Here are five quick facts about designating a housing allowance:
- The housing allowance designation can only be made for the future, not retroactively. This is why allowances are frequently updated in December or January for the next year.
- IRS does not place any limits on how much you can designate. In fact, you can designate up to 100% of your salary if desired. Many Churches have their own internal procedures on housing, though, so you may have to follow those established guidelines.
- There is no penalty if you underspend your housing allowance. However, if you overspend the housing allowance, you miss out on excluding more money from income taxes. It is always better to estimate higher rather than lower when designating.
- The housing designation doesn’t cost your Church any money. If you normally get paid $50,000 a year, and your Church designates $30,000 of that as housing, you still only get paid $50,000 in total.
- Only ordained, licensed or commissioned Clergy can designate a housing allowance, and only for their ministry work, and only for housing expenses for their primary residence.
Do you have more questions about how to designate a Housing Allowance? Visit our website at https://www.clergyfinancial.com/resources/proadvisor/ to schedule a ProAdvisor meeting with Clergy Financial Resources!
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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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