What is a pastor's housing allowance?


Quick Answer

A pastor's housing allowance is a set amount of monetary compensation specifically for use in securing housing as part of the pastor's employment and is only subject to self-employment tax. Some congregations may offer pastors a parsonage, which is a type of in-kind housing offered by a church. The pastor may be able to omit this benefit as income from federal taxes but not from self-employment taxes.

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Full Answer

When a pastor, preacher or similar religious official accepts a job with a licensed religious entity, it may include a housing allowance as one of the benefits. Typically, the pastor negotiates an amount for the allowance, though some may need to provide proof of the cost of housing to a church board beforehand. The allowance sometimes exists as a payment separate from the pastor's salary. The allowance may be paid to the pastor for use in renting a home, or the church may pay the landlord directly on the pastor's behalf. In these cases, pastors can refrain from including the payments in federal tax returns.

If the payment is built into the salary and not made in a separate payment, pastors need to calculate the lesser of the fair market value for the property or the actual rental price of the home and remove it from the gross earnings portion. When the church provides a parsonage to the pastor, she needs to calculate its fair market value and deduct it from gross federal earnings.

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