The group that brought the federal lawsuit against the cash version of the clergy housing allowance has decided not to appeal the unanimous Federal Appeals Court ruling that upheld the thing. They have a clever title to this news: Appeals Court Blesses Housing Allowance.
Now’s the time to start thinking about next year, brethren and sistren. Max your housing allowance out; that is, take as much of your clergy income in the form of the housing allowance as you can. It’s our best tax break.
If you own your own home here’s what GuideStone says about the maximum:
Ministers who own their homes can exclude the lowest of the following three amounts from income for federal income tax purposes when their church employer properly designates a housing allowance for them:
1. The housing allowance designated by their church; or
2. Actual housing expenses (including mortgage payments, utilities, property taxes, insurance, furnishings, repairs and improvements); or
3. The fair rental value of the home (furnished, including utilities).
Common errors about this include not documenting your expenses, not having the church make the proper designation of part of your pay as HA, taking a flat allowance equal to the FRV of your home and not actual expenses. There is no reason your church should not, with proper education, allow their clergy staff to maximize this. Most churches are uninformed on this and the single staff pastor might have to do some education.
GuideStone answers all your questions here including what this means if you live in a parsonage.
And, no, you can’t avoid self-employment taxes with the housing allowance which is a much bigger bill for most pastors than income tax. You gotta render to Caesar on this one but look at it this way, some of it shows up in my bank account every month since I draw Social Security. Thanks brethren.