Tax Facts

Information to help individuals and small business navigate our complex Tax Laws. Not to be construed as tax advice. Contact your hired tax advisor for your specific tax situation and advice.

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.

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