Ministers are unique in many ways: They experience a special calling and develop a personal ministry. But the differences do not end there — they even receive certain tax benefits.
One important tax benefit is the minister’s housing allowance. While this tax exclusion is available to both actively working and retired ministers, it’s important to know that the housing allowance designation must come from the same source who issues the income.
Section 107 of the Internal Revenue Code allows actively working ministers to exclude some or all of their ministerial income designated by the church (or church-related employer) as a housing allowance from income for federal income tax purposes. The IRS considers multiple factors to determine if a person is a “Minister for Tax Purposes”, including if a person is ordained, licensed or commissioned as a minister of the gospel. See GuideStone’s Ministerial Tax Issues to learn more about the eligibility of housing allowance.
Are you a Minister for Tax Purposes? If so, how should your employer determine your annual housing allowance to ensure it follows IRS guidelines accordingly? Below are three tips to keep in mind to help your church effectively designate your housing allowance.
Ministers have a unique dual tax status. They are considered employees for federal income taxes and self-employed for Social Security tax purposes.
Churches are not required to withhold federal income tax from a minister's paycheck. Ministers are responsible for paying both the employer and employee portion of Social Security taxes.
There is good news for retired ministers! Revenue Ruling 75-22 allows denominational pension boards such as GuideStone® to designate housing allowance for retired SBC ministers receiving income from their 403(b) retirement plan. (Housing allowance is never available from an Individual Retirement Account (IRA).)
You may ask GuideStone to designate up to 100% of your retirement income as housing. But, even as a retiree, you must continue to follow the housing allowance rules and limits.
As a retired minister, you still have three similar limits for your housing allowance during your retirement years. However, you will now need to make your housing allowance request through GuideStone. Your request will remain for future years, so unlike the authorization from the church, you do not need to submit your housing allowance request each year. If you need to change the housing allowance amount, contact GuideStone and they will make the change for you.
Ministers can exclude the lowest of the following three amounts from federal income for tax purposes when your pension board properly designates a housing allowance for you:
You may ask GuideStone to designate an amount on your retirement income application. You can also ask GuideStone to change that amount ahead of time by filling out a form. As a minister, you are always responsible as a taxpayer for following the housing allowance rules and reporting the correct amount of income on your tax return, regardless of what you ask GuideStone to designate.
If you are a retired non-SBC minister seeking a housing allowance designation, your initial request must be in writing and made in advance with a Retirement Income Application, verified and signed by your previous employer, or Housing Allowance Authorization form for changes going forward.
GuideStone Resources and Tools
If you have more questions, please contact GuideStone at 1-888-98-GUIDE (1-888-984-8433) or a certified tax professional who is familiar with ministerial taxes.
This educational information is not intended as legal or tax advice. Ministers or churches with specific legal or tax questions should consult a legal or tax advisor who understands ministerial tax issues.