25 Apr Do You Need an Official Designation to Receive a Housing Allowance?
The allowance must be officially designated in advance by the church. The designation should be stated in writing, preferably by resolution of the governing body and/or in an employment
contract. In addition, the designation should be recorded in the church budget and payroll records. If the only reference to the housing allowance is in the church budget, the budget should be formally approved by the top governing body of the church.
The designation should be an amount that a minister feels they will spend during the calendar year. According to Reg. 1.107-1(b) the amount designated must also be a specific dollar amount or a specific percentage of salary. The IRS does not place a limit on how much of a minister’s compensation may be designated as a housing allowance by the employing church. In a few instances, as much as 100% of the compensation may be designated.
The excludable portion of a housing allowance is based on your actual expenses and is not taxable for federal income tax purposes. The entire housing allowance is taxable for social security tax (SECA) purposes. The excludable housing allowance deduction is the lowest of these factors:
- Actual expenses incurred to provide and maintain a home
- Amount prospectively and officially designated by the employer
- The fair rental value of the home including utilities and furnishings
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