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
2. The amount actually spent on housing expenses for their primary home
3. 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.
Do you have more questions about the housing allowance? Clergy Financial Resources is there to help. Visit our website today at https://www.clergytaxnet.com/resources/proadvisor/ for more information on how to schedule a Pro Advisor session.
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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