Discussion:Pastors Salary and Housing Allowance
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Discussion Forum Index --> Tax Questions --> Pastors Salary and Housing Allowance
| 11 January 2007 | |
| Does the IRS look for a particular ratio or relationship between a Pastors salary and housing allowance? Is this something that is scrutinized? If a pastors salary is $65K and his housing allowance is $45K, does this appear out of whack? I know the housing allowance should be enough to cover mortgage and typical household bills (such as gas, electric, water), but how far can you go before a red flag is raised?
Thanks. | |
Mark Eason (talk|edits) said: | 11 January 2007 |
| It is possible that 45K is reasonable. The church should not be the limiting factor. Actual expenses and FMV rental should be. See Publication 517. Also there are other threads. If actual expenses or FMV rental are less than 45K, the difference is taxable federal income. | |
| January 11, 2007 | |
| 45k sounds high to me, unless you live in NY or CA somewhere. It's not about ratios. It's about fair rental value of the housing in that area. In Chicagoland, 25-30k isn't unreasonable...and a higher paid pastor who's got better digs could qualify for more, but that's a rarity. | |
Death&Taxes (talk|edits) said: | 11 January 2007 |
| The housing allowance must be designated in advance and is only non-taxable to the extent that it is used to pay for housing expenses AND IT DOES NOT EXCEED the fair rental value of the home plus utilities. I am paraphrasing the 2006 Guide for Episcopal Ministers. If the allowance exceed fair rental value, the excess is reported on Line 21.
The fair rental limitation came about because of a case in the 9th Circuit a few years ago where the IRS questioned an allowance of about 200K [this is my memory speaking]. To everyone's surprise, the Court started to delve into the constitutionality of the allowance itself, requesting both sides file briefs. Panicked clergy pushed Congress to define the allowance and the fair rental value limitation was the result. | |
| 27 June 2007 | |
| I have a question in regards to a pastors housing allowance and a Simple IRA. Are they allowed to get 3% plus the match the church gives them on their housing allowance or just on their W2 reported income(taxable)?
Thank you! | |
| 27 June 2007 | |
| Depends on the terms of call Big. The terms of call can elect to give them a 3% match on entire compensation including allowances that are not taxable to the minister. Most ministers on a pension plan through the denomination get the pension based on entire compensation; they don't care much how that is split for taxation purposes.... | |
| 27 June 2007 | |
| Sandy, the IRS rules pertaining to whether to match on gross compensation or only on the portion not designated as housing allowance is not dependent on the terms of the pastor's call, but is determined by code & regs (& citations of lesser authority as well). Following your logic, a church with 10 ordained pastors could have disparate matching percentages for its SIMPLE plan if each pastor was called at a different time and came with different negotiating skills. In this case, if one pastor's call specified his SIMPLE match was based on gross compensation including housing allowance and another's call specified his match was based on compensation excluding housing allowance, the net effect would be to have different matching percentages and would result in disqualification of the plan. | |
| 29 June 2007 | |
| A pastor's housing allowance also includes the fair rental value of the furnishings as well as the housing and utilities. | |
| 30 June 2007 | |
| I beg to differ Dugan. The PCUSA has it's own defined plan for the minister's and the amount the church places in it is on his entire compensation package, including housing allowances as well as any other allowances other than non accountable plans.
The terms of call for denominations are strict in that what is good for one is good for the other since they are the holders of the benefit plans..... If however like you pointed out, the terms of call and church alone allowances can determine who gets what percentages, then yes, it would be disproportionate and disallowed. I am under the impression that the church could not discriminate upon it's terms of calls for ministers so this would be a moot issue. The question is can they give them the 3% on the housing? YES if the terms of call indicate that the church is sponsoring that....but they cannot discriminate either :) | |
| 25 June 2008 | |
| Below are the rules for determining the amount of a minister's housing allowance. My question is - If a minister finishes paying off his mortgage, does the amount of housing allowance he gets to exclude from taxable income drop because he no longer has a house payment?
If you own your home and you receive a housing allowance as part of your pay, for your services as a minister, the exclusion cannot be more than the smaller of the following: 1)the amount actually used to provide a home, 2)the amount officially designated (in advance of payment) as a rental or housing allowance, or 3)the fair market rental value of the home, including furnishings, utilities, garage, etc. | |
| June 25, 2008 | |
| But it must be spent, Kev. So I'd say no...his exclusion must drop. | |
| 26 June 2008 | |
| JR1, that wasn't my understanding. Fair Rental Value implies what it would rent for. | |
WIBadgerCPA (talk|edits) said: | 26 June 2008 |
| I disagree. It doesn't need to be spent. FMV is ok. | |
| June 26, 2008 | |
| That's merely the upper limit of what CAN be taken. It's still built on what you actually spend. I'll have to go review that. | |
| 26 June 2008 | |
| I doubt that this is the upper limit on what CAN be taken - many times a house would rent for far far less than the true mortgage payment. | |
Death&Taxes (talk|edits) said: | 26 June 2008 |
| Richard Hammar, author of '2008 Tax Guide for Episcopal Ministers & Churches' agrees with JR. He notes that the allowance represents compensation for ministerial services, that it is used to pay housing expenses, and it does not exceed the Fair Market Rental Value of the home. He goes on to say, "Ministers who own their own homes lose the largest component of their housing allowance when they pay off their home mortgage loan." He warns that an equity loan payment will not suffice if the loan was not obtained for housing related purposes, citing the Tax Court but I cannot find the cite in the book.
I agree with Mr. Hammar and JR. | |
WIBadgerCPA (talk|edits) said: | 26 June 2008 |
| I stand corrected. The issue is defined in IRC Sec. 107(2), and applies to years beginning after 12/31/01. It states that a minister's gross income does not include 1)the rental value of a home furnished to him as part of his compensation or 2)the rental allowance paid to him as part of his compensation, TO THE EXTENT USED BY HIM TO RENT OR PROVIDE A HOME AND TO THE EXTENT SUCH ALLOWANCE DOES NOT EXCEE THE FAIR RENTAL VALUE......
My material gives the following expample. Parsonage allowance of $12,000, utilities/taxes/ins of $3,000, Fair rental value of home is $6000. Since actual cost are $3,000, that is what is excluded. | |
Death&Taxes (talk|edits) said: | 26 June 2008 |
| For all interested, read my first posting here......at the time that case in the 9th Circuit was a lightning strike.....and thus Congress acted to preserve the allowance, lest the courts throw it out entirely. | |
