MINISTER AND MISSIONARY TAXES
MINISTER’S PARSONAGE/HOUSING ALLOWANCE
A duly ordained minister does not pay income tax on amounts received as a parsonage allowance or housing allowance whether received in the form of a home provided to him or in the form of a cash allowance to the extent it is used to provide a home for himself and his family.
A minister can exclude from income the smallest of the following:
- The amount officially designated by the employer as housing allowance. The amount must be designated as housing allowance before payment is made.
- The amount actually used to provide a home including amounts paid in the tax year for rent, mortgage payments for principal and interest, property taxes, insurance, furnishings, appliances, repairs, utilities and down payments. Food, entertainment, servants or home equity loan payments for items unrelated to the home are not included. Please note that mortgage interest and property taxes used in this calculation can also be deducted on Schedule A.
- The fair rental value of the home, including furnishings and utilities. Determining fair rental value is a question of all facts and circumstance based on the local market. The IRS has not set guidelines for calculating fair rental value.
If the amount the minister can exclude from income is less than the housing allowance, the excess must be included as income on line 7 of Form 1040 as additional income.
Although housing allowances are not taxable income, they are reported by ministers as self-employment income for Social Security purposes.