Deducting housing allowance when the church is unable to pay a salary of any kind

Forum|Forum|3 years ago
November 2, 2022
4 replies
0 views

I was ordained this year as a clergy member with a new, very small church and we are trying to determine how to set up taxes. The church is unable to set aside any of its budget for clergy salaries, but would like me to benefit from the housing allowance as my compensation in lieu of a salary. I work a secular job as a regular employee for my income, but I would like to be able to benefit from the housing allowance from the church if possible as I'm giving a significant portion of my time in providing clergy services. Does the church have to actually PAY the housing allowance, or is the amount stated in writing by the board of the church to be used by me as a deduction on my total income taxes (income which will all be from my secular job)? I'm confused about how this is treated by the IRS - is the housing allowance a deduction from my taxable income or is it only allowed to be taken out of actual money that has been paid to me by the church (nothing for the forseeable future)?

TurboTax PLUS Online

Anonymous_

Employee

@Mike9241

rjs

Employee

The church has to pay the housing allowance. Basically the housing allowance is the portion of your pay from the church that is designated as being for housing. If they don't pay you anything, you have no housing allowance.

Opus 17

Employee

Sorry, no. There is no special deduction for housing expenses for ministers for money that they earn outside of the ministry job or expenses paid with funds from outside the ministry job.

To be considered tax free for income tax purposes (a housing allowance is always subject to self-employment tax) it must be paid by the church to the pastor in cash, or in-kind, such as in the form of a parsonage provided to the pastor rent free. (Additionally, the housing allowance must be designated as a housing allowance in advance and in writing.)

Robertgoldmckay

I am a religious volunteer at the county jail. My supervisor is a full time Chaplain at the jail. Her w2 from the county has the same amounts on lines 1,3, and 5. There is no amount indicated anywhere on the w2 as housing allowance. Are you aware of a way she could deduct her house payments and utilities on her taxes? Thx.

Opus 17

Employee

@Robertgoldmckay wrote:
I am a religious volunteer at the county jail. My supervisor is a full time Chaplain at the jail. Her w2 from the county has the same amounts on lines 1,3, and 5. There is no amount indicated anywhere on the w2 as housing allowance. Are you aware of a way she could deduct her house payments and utilities on her taxes? Thx.

The housing allowance must be declared in advance and in writing by the employer. If the chaplain has a letter from the employer that they have designated a portion of her salary as a housing allowance but they have failed to issue a correct W-2, the first step would be to ask for a corrected W-2. If they refuse, she can attempt to file using a "substitute W-2" with the numbers that should have been used. This would be an audit risk and she would need to back up her position with proof of the housing allowance and an explanation of her adjustments.

If she does not have a written notice that the employer has designated part of her salary as a non-taxable housing allowance, there is no other way for clergy to pay less tax on the value of their housing.

https://www.irs.gov/forms-pubs/about-publication-517

Noah18

If someone is a licensed/ordained clergy and works for a ministry non-profit in a clergy-related role (but they do not work for a church), can they receive a housing allowance as long as their employer gives them a letter that they have designated a portion of their salary as a housing allowance? (like the jail chaplain example being discussed)