How to Maximize Your Housing Allowance

If you are a minister, you may be eligible for a housing allowance.

It’s a really big deal.

This allows ministers to exclude part of their income from being taxed. This is not simply a tax deduction. From an income tax perspective, it’s as if the income never existed. It is a huge benefit.

You may qualify for a housing allowance if you are (1.) employed by a church or integral church agency, (2.) are performing ministerial services and help facilitate your church’s worship, and (3.) are ordained or “”the equivalent thereof.”

What can ministers who meet these criteria exclude for housing purposes? The lowest of the following:

  • The amount actually spent to provide your home.
  • The amount officially designated as a housing allowance by your employer.
  • The fair rental value of the home including furnishing, utilities, garage, etc.

For those who qualify, your employer should have a housing allowance form for you to fill out. You “declare” the amount of housing allowance to be excluded from your income for the calendar year.

You don’t want to miss the opportunity to take full advantage of this ministerial tax benefit. To do so may cause you to pay significantly more in taxes than you should.

So what are some of the ways you can maximize this benefit. Here are a few tips:

  1. Don’t be afraid to bring it up to your employer. If you feel that you qualify for a housing allowance but do not receive one, talk to your employer about it. There may be a good reason for it. But maybe you are eligible and have just never taken advantage of it. You somehow missed it when you were hired. Whatever the reason, find out why you are not receiving it.
  1. Declare in advance. Your employer should have a housing allowance form for you to fill out. This is important—it is never retroactive. You cannot declare expenses that have already taken place. If you are two months into the year and forgot to declare your housing allowance, you cannot include those two months.
  1. Keep track of all housing expenses. Make sure you know exactly how much you spend on your house. This includes mortgage payments, insurance, real estate taxes, furnishings, utilities, improvements, etc. Every dollar spent on your home potentially provides you a reduction on your income tax.
  1. Don’t underestimate. Remember, your housing allowance is the lowest of the three items mentioned above. Therefore, if you declare too low, you will not be able to exclude your income for expenses that go above what you have declared. Underestimating your housing allowance can be costly.

A housing allowance is a huge benefit for ministers. Take full advantage of it, and keep more money in your pocket.

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6 thoughts on “How to Maximize Your Housing Allowance

  1. I want to point out one important thing that can really hurt pastors when tax time comes if you are not aware. While housing allowance is not taxable, it IS subject to social security withholding. That’s crucial because, if you don’t plan for that, when tax time comes around you can find yourself subject to owing the full SS amount of 12.4% of your housing allowance. It happened to me and I found myself as a full-time pastor with a $6500 tax bill. Don’t let it happen to you.

    • What do you mean? There’s nothing one can do about it (unless one takes the exemption, which I won’t do). Does your church pay half of the SS amount for you? Mine does not! Or do you just mean planning ahead so you don’t have to pay the bill all at once?

  2. I have been using the IRS allowable housing allowance all my pastoral ministry (since 1972). It should be noted, however, that even though the housing allowance is not taxed, it IS subject to social security and medicare payments. This was designed so pastor would not find themselves at retirement age without paying into social security.

  3. Art:

    Thanks for this article. I have a couple of questions:

    1) Are interim pastors eligible for housing allowance if the church makes it an option?
    2) Is there a comprehensive list somewhere that includes all allowable expenses which fall under the housing allowance category? Your list was great, but I wonder if it is exhaustive.

    Thanks for the great content you provide!

  4. I would appreciate more information on the subject of Pastor’s housing allowance. I recently double
    my Pastor housing allowance and raised his actual salary by a little amount