Mr. Snailum also contributes his expertise to service-based organizations as in this example written for the Denver Rescue Mission’s human resources manual.

Housing Allowance
The allocation of the housing to those eligible individuals employed by the organization is a matter that should be reviewed by the individuals and the organization’s treasurer. The treasurer should be given written instructions as to the amount that will be designated as a "housing allowance" for each person authorized to participate in this allowance.
One of the few significant tax advantages left for clergy is the ability to exclude from federally taxable income the rental value of a parsonage or that part of compensation that is used to provide a home. (Internal Revenue Code section 107)

Who qualifies for the Housing Allowance?

What kind of expenses can be used when calculating the housing allowance exclusion?

How much of the Pastor’s salary can be used as the Housing Exclusion?

Only the lowest of the following can be used when the pastor files his federal income tax return:

How is the difference between the designated housing allowance and the lower of the three amounts handled?
If the allowance exceeds the lower of the actual expenditures or the fair rental value: the pastor needs to include the difference on Form 1040 as "other income."
If the actual expenditures or fair rental value exceed the allowance: the difference cannot be taken as an additional deduction on the pastor’s tax return. It is lost.

How is the Housing Allowance declared?

What about the pastor living in a parsonage?
Those clergy living in church-owned parsonages are already having the fair rental value of their home excluded from their income. In addition they can request their church council to establish a "parsonage allowance" out of their salary that is used for such things as utilities, repairs and furnishings for the parsonage.

How is the Housing Allowance handled on the W-2?
The housing allowance (or the value of living in a church-owned parsonage) is always excluded from federal income. This means the  treasurer excludes this value from Box 1 of the W-2. The treasurer can however put this amount in Box 14 of the W-2 which is merely an information box.

Tax Consequences
Allowable amount of housing allowance is not taxable for federal and state income tax.
Housing allowance is taxable for social security and medicare taxes.
Review your situation with your accountant or tax preparer.

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Ted Snailum Jr., CPA, TWS Financial, Littleton, CO 80128 | 303.933-4207