Tax Facts

Taxation of Minister/Pastor/Clergy Housing Allowance

Contrary to general belief, clergy do pay income taxes. This can come as a surprise both to clergy and to laypersons; especially with regard to the housing allowance. An ordained minister, priest, pastor, etc. pays no federal income tax on a housing allowance that the congregation has officially designated as part of the minister's compensation package. This means at best the housing allowance should appear on the W-2 separately as such; at worst it should be listed in a contract dated prior to any payments made for the same.

However, this does not mean the housing allowance is not taxed at all. And it is a misnomer to say it is "tax free." The housing allowance must be reported as Self Employment income. Therefore, it is subject to the self-employment taxation. If a pastor does not receive a housing allowance, then what must still be reported is the rental value of a rectory, parsonage, or other housing that is provided, as self-employment income. The rental value is generally equal to what comparable housing in the area goes for on the rental market.

Additionally, any value of house furnishings, utilities, and garages must be included in the housing allowance reported. It can get complex and you should seek the advise of a licensed tax professional if you have any questions about what to include on the tax return, what is taxable and how it is taxed. Clergy, just like laypersons, are subject to audits by the IRS. These are some of the items they will be checking if you are subject to one.

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