Free resource for pastors
A plain-words guide to the minister’s housing allowance, a sample church resolution you can copy and edit, and a simple worksheet to track your housing costs.
A housing allowance only works if your church officially designates it in advance. IRS Publication 517 says the designation can be shown in an employment contract, in church or board minutes, in a budget, or in “any official action taken in advance of payment of the allowance.” Informal conversations don’t count, and a designation can’t reach back to cover amounts already paid.
For most churches, the simplest approach is a short board or congregational resolution adopted before the first paycheck of the year, recorded in the minutes. If it’s already January, it’s not too late going forward: the designation applies to payments made after it is adopted.
The housing allowance is for ministers who are duly ordained, commissioned, or licensed, and it covers pay for ministerial services. If your church provides a parsonage, the fair rental value of the parsonage is excluded instead, and the church can still designate an allowance for utilities and other costs you pay yourself.
About down payments: a down payment counts as a housing cost, but the exclusion is still capped at the smallest of the designated amount, your actual costs, and the fair rental value (furnished, plus utilities). A large down payment often goes past that cap in the year it’s paid, so the extra doesn’t add to the exclusion.
If you own or rent your home, the amount you can exclude from income tax is the smallest of:
The allowance also can’t be more than reasonable pay for your services. Any designated amount above that smallest figure is reported as income on your return (Form 1040, line 1h, labeled “Excess allowance”).
The housing allowance is excluded from federal income tax, but it is not excluded from self-employment (SE) tax. Ministers pay Social Security and Medicare through SE tax on their ministerial earnings, and the housing allowance (or the fair rental value of a parsonage) is included in that figure, unless you have an approved IRS exemption on Form 4361. Planning for this with quarterly estimated payments or extra withholding helps avoid a surprise in April.
Copy this into your board or business meeting minutes and edit the bracketed parts. Your church may already use its own format, and that’s fine as long as it’s official and adopted in advance.
We recommend the church re-adopt the housing allowance designation every year, before the year begins, so each year has its own clear, current record. Many pastors also estimate a little above expected costs so an unexpected repair is covered; any amount not used is simply reported as income.
Use this to estimate the amount to request from your church, then track actual costs during the year. Keep receipts and statements with your tax records.
| Housing cost | Monthly estimate | Yearly estimate | Actual for the year |
|---|---|---|---|
| Rent or mortgage payments (principal & interest) | |||
| Real estate property taxes | |||
| Homeowner’s or renter’s insurance | |||
| Electricity & gas | |||
| Water, sewer & trash | |||
| Home landline, home internet & cable/streaming | |||
| Furniture, furnishings & appliances | |||
| Repairs & maintenance | |||
| Improvements | |||
| Yard care & upkeep supplies | |||
| Other housing costs (ask your preparer) | |||
| Total housing costs |
| A. Amount designated by the church in advance | $ |
| B. Actual housing costs for the year (total above) | $ |
| C. Fair rental value of the home, furnished, plus utilities | $ |
| Excludable housing allowance: the smallest of A, B, or C | $ |
| Excess allowance reported as income (A minus the smallest figure, if more than zero) | $ |
If you’d like a second set of eyes on your housing allowance, or help with your return, Cameron is glad to help. Send a note through the contact page.
This page is general information, not legal or tax advice. Rules can change and every situation is different, so check with your tax preparer before relying on it.