Housing discount - Do You Have One Set Up For Your Pastor?

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A housing reduction is basically payments made by the church to the minister for the minister's estimated housing expenses.

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It is a great tax benefit for ministers. Sadly, a lot of ministers or church board members do not know whatever about it, especially in smaller churches.

It is very beneficial for ministers to prescribe part of their compensation holder as a housing reduction because it is exempt from federal income tax...but not from the minister's self-employment tax.

I am going to give you a very brief form on setting one up. If you plan on setting one up for your minister, please do your homework and find out all the facts before you issue that first check.

In order to qualify for the exclusion of a housing reduction from federal income tax, three very foremost conditions must be satisfied:

Your minister must meet the Irs' 5-test definition of a minister. It must be board beloved before it was paid (A housing reduction is Never retroactive) The minister authentically spent the reduction on eligible housing expenses while the year

Your church must rule the Ha whole before it is paid. A completed worksheet should be included in the church's minutes. Make sure it is completely filled out by your qualifying minister before your church board meeting.

The predetermined whole should be included in a board beloved resolution and properly documented in the church records. Most of the time, it is reviewed and adjusted at the beginning of each new allocation year.

Your church does not have whatever to do with the second condition. The minister has the accountability of tracking actual housing expenses and determining the fair rental value of the housing.

Very important... The church does not have any accountability in development sure that the minister spends all of his housing reduction on housing expenses.

Instead it is the minister's accountability to report any excess funds as taxable income. The church should never know, and has no right to know, what the minister does with his housing allowance.

The funds may be used for any price relating to renting a home, purchasing a home, and maintaining a home.

Some of the eligible expenses are:

Mortgage payments/rent Utilities Mortgage interest and insurance Home insurance property tax

If minister lives in a church furnish parsonage, the minister is not subject to income taxes on the use of the parsonage.

However, the fair rental value of the parsonage is added when figuring his self-employment tax. (The minister is responsible for determining the fair rental value of the parsonage.)

The church is not required to report the minister's housing reduction to the Irs.

However many churches choose to report it in Box 14 of the minister's W-2 as a courtesy to the minister.

Or, churches can just include the whole of the housing reduction whole in a isolate letter to the minister. (This isolate letter should not be sent to the Irs and will not be included or attached to the minister's personal tax return.)

In conclusion, a housing reduction is a very nice benefit for ministers who do not get very many tax breaks. So...do your research, make sure it is properly set up, and know the regulations regarding housing allowances before you issue that first check.

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