III.E.2
CLERGY HOUSING ALLOWANCE
Samaritan Center staff members who are ordained ministers, called to their assignments by a religious body, and who meet IRS criteria, may be able to exclude from federal income taxes that portion of their compensation designated as housing allowance. Section 107 of the Internal Revenue Code permits this, but a very careful procedure must be followed.
What follows is a general statement about procedures. Please note: THIS IS NOT TAX ADVICE. CENTER BOARD AND CLERGY STAFF MEMBERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS IN SETTING UP THIS PROCEDURE.
1. The amount of compensation designated as housing allowance is based on the staff member's careful estimate of his or her housing expenses. While it is better to overestimate than to underestimate, any excess payment over actual housing expense is taxable as ordinary income. The employee, therefore, should be diligent in keeping records to substantiate the deduction. The burden of proof rests with the staff member. The IRS has generally used "fair market value" as the guideline for determining limits for housing allowance amounts.
2. The clergy staff person may be able to include some or all of the following in the estimate of living expenses for housing allowance purposes:
¨ Rent for a house
¨ Payment of principal and interest on the purchase of a house
¨ Costs of acquiring the house; e.g., legal and bank fees
¨ Cost of furnishing the house (TV, stereo, drapes, dishwasher, etc.)
¨ Insurance payments on the house
¨ Property taxes on the house
¨ Utility payments
¨ Costs of renovation and repair
- The board of directors is required to approve housing allowances before the Center starts paying them, not after the fact.
- The board should officially act on the clergy staff member’s request for a housing allowance and include this action in the minutes.
- Housing allowances for new employees should be designated at the time of hiring.
As a matter of information, clergy pay social security taxes on the housing allowance portion of their compensation, but the Center is not required to monitor such transactions.
On the next page is a sample letter to the board written by a qualified clergy counselor on the staff requesting a housing allowance, followed by a sample Board Resolution action responding to the request.
LETTER TO THE BOARD*
Sample
The Board of Directors
Samaritan Counseling Center
I have reviewed my anticipated expenses for providing and maintaining a house for the upcoming year (20 ). During this time I expect to spend the following amount:
1. House payments (principal, interest, taxes, and insurance) $12,600
2. Utilities (Electricity, gas, telephone, water, trash pick-up) $ 3,400
3. Repairs and maintenance $ 2,000
4. Furnishings $ 2,000
TOTAL: $20,000
I respectfully request the board to take formal action to designate the above amount as my official housing allowance for 20 .
Sincerely,
The Rev. Jane Doe
Pastoral Counselor
BOARD RESOLUTION*
Sample
The board has been informed by The Reverend Jane Doe that under section 107 of the Internal Revenue Code of 1954 a minister of the gospel may exclude from federal income taxes a housing allowance paid to her as part of her compensation of an amount used by her to rent or otherwise provide a home.
The board has received a statement from Rev. Doe setting forth the amount she estimates spending during 20 to rent or otherwise provide a home.
The board, on motion duly made and seconded, adopted the following:
Resolved that Rev. Doe receive a housing allowance of $20,000 for the year
20 . The housing allowance shall be so designated in the official records.
*IT IS RECOMMENDED THAT YOU HAVE YOUR TAX ADVISOR
REVIEW THESE PROCEDURES
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The Samaritan Institute