Minister's Housing Allowance
The Minister's Housing Allowance (or Parsonage allowance) is a special benefit that ordained ministers receive income tax free. The IRS Publication 517 discusses in detail this special benefit. Though not subject to income tax the housing allowance is considered income for Self employment taxes.
The housing allowance is determined as a matter of negotiation between the minister and his employing organization, and typically respresents the Fair Market rental value of the minister's housing, be it provided by the employing organization or the ordained minister, in the service of carrying out his duties. However, the exclusion is limited to the lesser of the fair market rental value (including furnishing, utilities, garage, etc.), the amount officially designated (in advance of payment) as a rental or housing allowance, or the actual amount used to provide a home, and cannot exceed what is reasonable pay for the minister's services. The payments must be used in the year received.
President Bush has assured the continued benefit of this special benefit by signing into law May 20, 2002, the Clergy Housing Allowance Act. Tax preparers need to be aware of the special tax laws for ministers.
Reference IRS FAQ 4.10 on the IRS website has more detail on the minister's housing allowance.