Managing your

Minister’s Housing Allowance

Belinda A. Whitfield, CPA

The IRS allows ordained ministers to exclude housing related expenses paid during a tax year from
their federally taxable income. This is accomplished though a designated housing allowance paid by
the employer. The allowance may be a portion of the base salary or in addition to the base salary
of the minister. While the allowance is not subject to federal and state income taxes, it is however
subject to self-employment taxes (social security and Medicare).

In order to qualify for this income exclusion several requirements must be met.

Requirement #1- The allowance must be designated by the Church Board - The minister should
submit a housing allowance request (see sample)to the Church board. The allowance must be
designated by the church board in writing in advance of the calendar year. Churches that fail to
designate an allowance in advance of a calendar year should designate the allowance as soon as
possible in the current calendar year. Then, any future payments may be treated as a housing
allowance. Also, the board may amend the allowance during the year if the original allowance
proves to be too low.

What can a housing allowance include?

r Rent or Mortgage Payments

r Down Payment on a new home.
r Insurance on your home and contents
r Real estate taxes
r Maintenance, pest control, etc.
r Repairs, plumbing, electric work, etc
r Kitchen items, plates, silverware, dishes, utensils, cups, glasses, cookware.
r Household cleaning supplies, soap, detergent, tissue, brooms, light bulbs, trash bags, etc.
r Utilities (electricity, gas, telephone (local service), sewer, water, rubbish removal, cable TV,
firewood).
r Landscaping, lawn services, gardening, fencing.
r Furniture and furnishings - purchase, repair and upkeep.
r Room additions and other structural changes.

Tip: When computing your annual housing allowance, round the amounts to the nearest $100.

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 HOUSING ALLOWANCE REQUEST

Date: ________________

Church/Ministry Name: ____________________________________

To the Board of Directors or Trustees:

Based on my past expenditures, I reasonably expect to spend the following amount to rent
or provide a home in 200_.

ANNUAL
DESCRIPTION AMOUNT

1. Rent or mortgage payment including principal and interest $____________

2. Property taxes on home $____________

3. Insurance on residence $____________

4. Utilities $____________

5. Repairs and maintenance to home and furnishings $____________

6. Furnishings $____________

7. Down payment on a new home $____________

8. Other expenditures $____________

Total $____________

I respectfully request the board to designate a portion of my compensation (the above

amount) as my housing or rental allowance, as provided by Section 107 of the Internal
Revenue Code for a minister of the Gospel.

Sincerely,

__________________________
Minister’s Signature
Requirement #2 - The Minister must keep good records of the actual housing expenses.
See Housing Allowance Checklist.

Requirement #3 - The exclusion is subject to certain limitations.

The allowance is limited to the lower of:
1. The amount designated as housing allowance by the Church Board.
2. The amount actually spent on qualified housing expenses.
3. The fair rental value of your furnished home, plus utilities.

Requirement #4 - Excess housing allowance must be computed. You must report and pay taxes on
excess housing allowance. The difference between what you receive as a housing allowance and the
IRS allowance (per Requirement #3) must be reported as additional income. Your tax preparer
should request a summary of your actual housing expense along with the other amounts in
Requirement #3 to determine whether there was an excess.

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 Housing Allowance Checklist

r Plan your housing costs. Refer to the list of allowable housing expenses. prepare a housing
budget to use as a basis for determining the estimated housing expenses for the new year.

r If you own your home, compute the fair rental value of your furnished home, plus monthly
expenses. Your housing allowance cannot exceed this amount.

r Submit a housing allowance request in writing that summarizes your estimated annual housing
costs by category. Your requested allowance should not exceed the fair rental value of your furnished
home, plus monthly expenses.

r Obtain written approval from the church board.

r Maintain a separate checking account for housing costs. Pay all housing expenses from this
account with checks or a debit card. Do not withdraw cash from the ATM. It’s difficult to track actual
costs and replenish the housing account for unused cash.

r If possible, use a personal financial management program such as MS Money or Intuit’s Quicken
to keep track of your housing expenses, balance the housing checking account, generate year-end
reports and track all other personal financial matters.

r Reimburse yourself for items paid by your own out-of-pocket cash and/or your personal credit
card.

r Keep all housing expense receipts in a separate filing system or envelope.

r In November or December, calculate your actual housing expenses to date and review your
balance in the checking account. Reimburse the account for any account maintenance, check printing
fees, or other fees charged. These are not considered housing expenses. Likewise, if the account is
interest bearing, you may move the interest earnings to your personal account. This is taxable income
and should not be considered as extra money for housing expenses.

r Make sure you spend all of your allowance by year-end. After reconciling your housing
checking account in early January, transfer any unused housing money into your personal account.
This will be additional taxable income.

Report your Housing expenses, allowance and Fair Rental Value of your home to your tax accountant.

Belinda Whitfield
Whitfield & Associates, LLC
PO Box 109 Bolingbrook, IL 60440
630-759-6900
www.ChurchCPA.com

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