Ministers aren’t taxed on–
- the value of the parsonage provided to them.
- the housing allowance paid as part of their compensation.
The housing allowance can include a wide variety of things needed to furnish and maintain the home, its contents, and its yard. Here are some expenses which can be covered by the housing allowance:
- Rent, mortgage payments, down payments, property taxes, mortgage interest.
- Utilities: heat, electric, non-business telephone, water, cable TV, sewer, garbage.
- Insurance for the home and contents.
- Improvements, repairs, and upkeep.
- Furnishing, appliances, cookware, decorator items (curtains, pictures, linens, wallpaper, bedding).
- Yard tools and machines.
- Anything needed to maintain the home and what’s inside–lightbulbs, carpet and curtain cleaning, cleaning supplies, mower maintenance.
The pastor must pay for these things out of his own pocket.
Some things not covered: groceries, toiletries, clothes, hobby items, music, a maid, videotapes, computer games….
Remember: You must still pay Social Security taxes on the value of the parsonage or the housing allowance. Unless, of course, the minister has opted out of Social Security.
Each year, the board needs to pass a resolution to set the amount of housing allowance.
- The resolution must be included in the board minutes.
- The resolution should be passed before the minister actually begins working.
- The housing allowance can be stated as either a dollar amount or a percentage of the total salary.
If the church provides the home, the housing allowance itself won’t be very high. It’ll cover such things as utilities, upkeep, and furnishings. But if the pastor provides his own home, then the housing allowance will be substantially higher so it can cover mortgage, property taxes, insurance, and all the other expenses involved in providing and maintaining a home.
What if your church provides a home to a non-minister? If the home is for the employee’s convenience and is a condition of employment, the “housing allowance” concept applies–meaning, the employee doesn’t need to report the fair rental value of the home as income.