Ministers: Get Your Tax Planning Done Before Your Upcoming Charge Conference!—The Housing Allowance Exclusion Benefit

As Charge Conference season approaches, ministers and staff-parish relations committees need to plan now for clergy compensation to comply with the tax requirements and take advantage of all the tax benefits available to ministers (the topics of this series of articles):

• Required estimated quarterly tax payments or voluntary withholding agreement.
• The clergy housing allowance exclusion benefit
• Deductible ministerial expenses

At the Charge Conference of First Church on the River Mountain Coastal District of the Virginia Conference where the Rev. John Wesley Asbury serves, a member addressed the District Superintendent. With regard to the annual resolution designating a portion of Pastor John’s salary as a housing allowance exclusion, she asked, “Will this cost us anything? Are you sure this is legal? With all due respect, why does the minister get to avoid paying taxes on money he spends to provide for his housing? I don’t get that benefit?”

Church leaders often wonder about the action of the Charge Conference that follows the requirement of the Internal Revenue Code for designating a portion of the minister’s salary as a housing allowance exclusion for tax-favored treatment. Historically, Congress included ministers as beneficiaries of the tax benefit secular employees enjoy that excludes from taxation the value of housing provided on the employer’s premises in which the employee is required to live. The church is not approving additional compensation for the minister. It is identifying a portion of the previously adopted pastor’s salary used by the minister to provide housing.

For the minister, the housing allowance exclusion is excluded from gross income for income tax purposes.

To qualify for the housing allowance exclusion benefit, certain requirements must be met. The amount:

• Cannot be more than reasonable compensation for the minister’s services
• Must be designated by the Charge Conference prior to the minister’s receipt of the compensation
• Is limited by the lessor of:
  1. The fair rental value of the home furnished plus utilities
  2. The amount the minister spends on housing expenses or
  3. The portion of the minister’s salary that is officially designated as a housing allowance exclusion.

The following are examples of qualifying expenses for this exclusion:

• Rental payments
• Downpayment on a home
• Payments (including prepayments) on a mortgage loan to purchase or improve the home (including both interest and principal)
• Real estate taxes
• Property Insurance
• Structural repairs and remodeling
• Homeowners’ association dues
• Utilities
• Furnishings and appliances (purchase and repair)
• Maintenance items (household cleaners, light bulbs, pest control, lawncare, etc.).

However, for ministers, unlike secular employees, the clergy housing allowance exclusion benefit is not quite as lucrative as it first appears. It is included in earnings for self-employment tax. Furthermore, a minister who lives in a church-provided parsonage must include its fair rental value in earnings for self-employment tax (see my previous article Required Estimated Tax Payment [or Voluntary Withholding Arrangement] for more details).

In determining the amount of the housing allowance exclusion that is adopted by the Charge Conference resolution, Pastor John has worked with his church leaders in determining the fair rental value of the home and estimating his total housing expenses for 2027. He will keep a careful record of those expenses and maintain them in his personal tax file.

Ministers who want to learn more are invited to the Center for Clergy Excellence’s clergy continuing education event: Called, Compensated, and Covered: Understanding Clergy Finances: A Four-Part Webinar Series for Clergy in October. Registration at this link…