A church can call someone a priest, but the IRS should not treat that person as a tax minister – it depends on individual facts and circumstances. The IRS will consider most ordained ministers to be tax ministers and will therefore be entitled to a housing allowance for their ministerial income. Dismissed and delegated ministers are less often treated by the IRS as tax ministers, but this depends on their individual facts and circumstances. For more information on tax ministers, see our annual brochure on ministers` tax guidelines or the brochure on tax issues at the ministerial level. You are available on our website at GuideStone.org/TaxGuide, or call GUIDE 1-888-98 (1-888-984-8433) for a free copy. Example: Reverend Smith owns his own house and his church has set 40% ($16,000) of his $40,000 salary in annual pre-life. Its actual cost of housing for the year was $15,000. The fair value of his home (furnished, including utilities) was $17,000. Reverend Smith can exclude 15,000 $US of income because his actual housing costs were less than the amount set by the church and the fair rental value of his home.
As taxpayers, ministers must determine whether they are entitled to housing benefit, whether they understand the limits and follow all the rules. They must keep records to support the cost of everything they exclude from income as a housing cost. When a church determines more than a parish priest can claim as a housing allowance, the minister is responsible for reporting and paying taxes on the fair level of income. The excess housing allowance should be counted as income on the Minister`s tax return. Ministers must also pay self-sufficiency taxes (SECA) on their housing allowance or on the fair value of their home when they live in a rectory. Many facts and circumstances can be useful in determining whether the retreat took place. For example, when a minister receives retirement income from a plan and contributes to the same plan, the IRS cannot contemplate that ministers have retired for the purposes of housing allowance and favourable seca tax treatment. Similarly, the IRS may consider that ministers are not retired if they have not had a service interruption or significant change in duties.
Ministers and their tax advisors should cooperate in reviewing the relevant facts and circumstances of the case. Churches can set a housing allowance for tax ministers. A minister`s housing allowance can only be for the income of ministers. Secular employers cannot set housing allowances for ministers who are paid to work in non-ministerial occupations. Ministers who own or rent their homes do not pay federal taxes on the amount of their allowance, which their church, which is designated in advance as a housing allowance, to the extent that the allowance is an allowance for ministerial benefits, is used for the payment of housing costs and does not exceed the fair value of the house (furnished, plus benefits); For example, Reverend Smith`s housing allowance is 40% ($16,000) of his $40,000 salary.