Ministers are unique. They receive an inspirational calling from God to ministry accompanied by a special dual tax status from the IRS. Ministers for Tax Purposes also receive certain tax benefits — one of the most important being the ministers' housing allowance.
What is the ministers' housing allowance?
Section 107 of the Internal Revenue Code allows ministers of the gospel to exclude some or all of their ministerial income designated as housing allowance from income for federal income tax purposes.
How to determine housing allowance
If a housing allowance is properly designated in advance, a minister can exclude the lowest of the following three amounts from income for federal tax purposes:
- The total housing allowance designated by their church
- Actual housing expenses (including mortgage payments, utilities, insurance, improvements, furnishings, etc.)
- The fair market rental value of the home (furnished, plus utilities)
Ministers for Tax Purposes have a dual tax status. They are considered employees for income tax purposes and self-employed for Social Security tax purposes.
Ministers for Tax Purposes are:
- Exempt from federal income tax withholding
- Required to pay the full amount of Social Security tax
- Allowed to exclude housing allowance from federal income tax, but not from Social Security tax
During working years
Ministers for Tax Purposes are eligible for a housing allowance on their ministerial earnings. This designation can only be made in advance and should be made in writing by the church before the start of each year for tax purposes.
