Housing Allowance
Ok, from time to time there is some confusion regarding housing allowances for Ordained Ministers. I will say, most ordained ministers know this stuff better than us accounting folk… I mean, it is their salary! Anyway, this is our attempt to explain what this looks like…
The IRS excludes the costs of renting or maintaining a home from the gross income of a “duly ordained, commissioned, or licensed minister of a church”. For the sake of simplicity we will use the term “commissioned” throughout this discussion. For all you admin people, per Revenue Ruling 62-171, 1962-2 C.B. 39, the IRS has ruled that an employee holding an administrative position may also qualify for a Housing Allowance under Section 107 of the Code.
The Housing Allowance is limited to the lessor of:
- The amount designated as Housing Allowance.
- The amount actually spent on housing expenses.
- The fair rental value (FRV) of one’s home.
The IRS Regulations say the request must be made in advance of receipt of any monies advanced as a Housing Allowance.
Therefore, in order to properly document a Housing Allowance, the following should be observed:
- A request for Housing Allowance should be made by the employee to the Board of Elders.
- The Board of Elders needs to initiate a Housing Allowance as reflected in Board Minutes.
- A specified dollar amount designated as the Housing Allowance should be mentioned in Board Minutes.
The Church should have a file for each commissioned employee which contains:
- A worksheet computing the Housing Allowance.
- A copy of the Ordination Certificate.
- A copy of an approved Form 4361 (if applied for).
Several other tidbits to note…
- Housing Allowances can be increased or decreased mid-year.
- Unused Housing Allowance must be claimed as income when taxes are filed.
- A good time to review Housing Allowances is during the budgeting process for the coming year.
- The amount of the Housing Allowance should be based on a percentage of the employee’s salary that might be reasonably spend on housing. For example: a Housing Allowance that equals the employee’s salary will trigger an IRS audit because a person doesn’t reasonably spent 100 percent of his or her salary on housing.
So, it’s typically pretty basic! As always, let us know if you have any questions… We’re always here to help!