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

Answer:    

• 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 (for services 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.
  • 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.
• The amount of the allowance that cannot be excluded should be entered with your wages on line 7 of Form 1040.

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 your wages on line 7 of form 1040.

For additional information on a minister’s 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.