A minister receives a salary plus a housing allowance. Is the housing allowance income? Where does the minister report it?

A minister's housing allowance, sometimes called a parsonage allowance or a rental allowance, is excludable from gross income for income tax purposes, but not for self-employment tax purposes.

If you are a minister and receive as part of your salary (as a minister) an amount officially designated as a rental allowance, you can exclude from gross income the amount that is used to provide or rent a home. However, the exclusion is limited to the lesser of the fair market rental value (including furnishing, utilities, garage, etc.) of the amount officially designated (in advance of payment) as a rental or housing allowance, or the actual amount used to provide a home, and cannot exceed what is reasonable pay for your services. The payments must be used in the year received.

If housing is furnished to you by your congregation as pay for your services as a minister, the exclusion cannot be more than what is reasonable pay for your services, and is limited to the fair market rental value (including furnishings, utilities, garage, etc.) of the home.

If you own your home and you receive a housing allowance as part of your pay, for your services as a minister, the exclusion cannot be more than the smaller of the following:

• The amount actually used to provide a home,
• The amount officially designated (in advance of payment) as a rental or housing allowance,
• The fair market rental value of the home, including furnishings, utilities, garage, etc., or
• An amount which represents reasonable pay for your services as a minister.

The amount of the allowance that cannot be excluded should be entered with you wages on line 7 of form 1040.

For additional information on housing allowance, refer to Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers. For information on earnings for clergy and reporting of self-employment tax, refer to Tax Topic 417, Earnings for clergy.

References:

• Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
• Tax Topic 417, Earnings for clergy

For a minister, is the housing allowance included in box 1 with wages?

No. The church would enter the amount of any parsonage allowance and any utilities allowance in box 14 of Form W-2. If the housing allowance exceeds the minister's qualified expenses, the minister would add the excess to the wage amount and enter the sum on line 7 of Form 1040.

References:

• Form W-2 and W-3 Instructions
• Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
• Tax Topic 417, Earnings for clergy

As a minister, what do I do if my household expenses are greater than my housing allowance?

Usually, the total of household expenses is only used as a limit to the amount of excludable parsonage allowance (for an ordained, commissioned, or licensed minister). A parsonage allowance or the fair rental value of a parsonage provided as pay for a minister's services is excluded from gross income for income tax purposes only, not for the computation of self-employment tax.

While the excess cannot be deducted, it is helpful to prepare a worksheet like the one labeled "Attachment 1," shown as part of the comprehensive example at the end of Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers. This worksheet, when completed, reflects the amount of income you've received, your qualified expenses, and your tax-free (excluded) income. If your expenses exceeded the amount of your parsonage allowance, your allowance will be fully excludable for income tax purpose provided the amount would not exceed an amount which represented reasonable pay for your services as a minister.

References:

• Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
• Tax Topic 417, Earnings for clergy

As a minister, what do I do if my household expenses are less than my housing allowance?

To the extent that your household expenses are less than your parsonage allowance, the excess of your allowance is taxable income for income tax purposes.

If you receive as a portion of your pay for your services as a minister an amount officially designated as a rental allowance, you can exclude the allowance if the amount is used to provide or rent a home. However, the exclusion is limited to the lesser of the fair market rental value (including furnishings, utilities, garage, etc.), the amount officially designated as a rental or housing allowance (prior to payment), or the actual amount used to provide a home, and cannot exceed what is reasonable pay for your services.

If housing is furnished to you by your congregation as pay for your services as a minister, the exclusion cannot be more than what is reasonable pay for your services, and is limited to the fair market rental value (including furnishings, utilities, garage, etc.) of the home.

If you own your home and you receive a housing allowance as part of your pay, for your services as a minister the exclusion cannot be more than the smaller of the following:

• The amount actually used to provide a home,
• The amount officially designated as a rental or housing allowance, or
• The fair market rental value of the home, including furnishings, utilities, garage, etc.
• An amount which represents reasonable pay for your services as a minister.

The amount of the allowance that cannot be excluded should be entered with your wages on line 7 of Form 1040, U.S. Individual Income Tax Return.

References:

• Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
• Tax Topic 417, Earnings for clergy

Are all ministers treated as self-employed for social security purposes?

Services that a duly ordained, commissioned or licensed minister performs in the exercise of his or her ministry are covered under the Self-Employment Contributions Act (SECA). That means they are exempt from Social Security and Medicare withholding, but they are responsible for paying self-employment tax on their net earnings from self-employment.

There are some members of religious orders, ministers, and Christian Science practitioners who have requested and been granted exemption from self-employment tax. There are also members of religious orders who have taken a vow of poverty and ministers who are covered solely by the social security laws of another country under a social security agreement between the United States and that other country.

References:

• Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
• Form 4361 (PDF), Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners
• Tax Topic 417, Earnings for clergy

I am a licensed minister. What are the procedures to follow to file for Exemption from (Self Employment ) Social Security Taxes?

The procedures to request an exemption from self-employment tax are listed in Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers.

References:

• Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
• Form 4361 (PDF), Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners
• Tax Topic 417, Earnings for clergy