Ministers & Other Members of the Clergy

Parsonage or Housing Allowances

Generally, a minister's gross income does not include the fair rental value of a home (parsonage) provided, or a housing allowance paid, as part of the minister's compensation for services performed that are ordinarily the duties of a minister.

Parsonage Allowance: A minister who is furnished a parsonage may exclude from income the fair rental value of the parsonage, including utilities. However, the amount excluded cannot be more than the reasonable pay for the minister's services.

Please note that the above requirement pertains to the housing/parsonage allowance only, not to the other expenses one might have while performing services as an ordained minister (e.g. student pastorate, interim lay pastorate, summer missionary, camp counselor).

Pastors, evangelists, missionaries, theological students serving as assistant pastors, music and education directors, administrators of missions boards or religious organizations and teachers or workers exclude all the expenses of the home if the requirement for being ordained, commissioned or licensed is met and the organization is under the control of a religious body.

What does this allowance include?
1. Rent, purchase of a home or home remodeling, not to exceed Fair Market Rental Value* including down payment, mortgage payments, legal fees, interest, taxes and insurance.

2. Furniture, appliances, curtains, rugs, vacuum sweepers, washing machines, dryers, pictures, throw rugs, kitchen and garage utensils.

3. Utilities: heat, electric, telephone, water, cable TV, sewer charge, wood for fireplace, heating oil.

4. Cleaning supplies, brooms, light bulbs, lawn care.

5. Miscellaneous repairs.

Note: Mortgage interest and real estate taxes are also deductible on Schedule A (i.e., a double deduction).

*Fair Market Rental Value (FMRV) varies by location and by house. A general rule of thumb for FMRV is one percent of the appraised value per month. For example, if the appraisal equals $100,000, the monthly FMRV would be $1,000. The annual FMRV would be $1,000 x 12 = $12,000. Items 2-5 are in addition to the FMRV limitation.

Parsonage allowance for retired ministers: Retired ministers who receive either a parsonage or housing allowance are not required to include such amounts in income for tax purposes and for self-employment tax purposes. Code §1402(a)(8).

Home mortgage interest and taxes on parsonage: Ministers may deduct home mortgage interest and real estate taxes they pay on their home, even if they use a tax-free rental or parsonage allowance to make the payments.

Earned Income Credit
A parsonage allowance is considered earned income for purposes of the EIC.

If a minister is paid as an employee, he will report his wages on Line 7 of Form 1040 and as a self-employment income on Schedule SE. However, the minister can only count the wages once in determining earned income for EIC purposes.

If a minister is exempt from self-employment tax as a conscientious objector (see Exemption from self- employment tax for conscientious objectors, above), his compensation is included in earned income for purposes of the EIC even though he does not report it on Schedule SE.

Qualified Plans & IRAs With Respect To Ministers
Ministers with self-employment who are exempt from self-employment tax as conscientious objectors are self-employed individuals for purposes of qualified plans and IRAs. Therefore, they can establish and contribute to SEP, SIMPLE and KEOGH plans, as well as IRAs. Code §401(c)(c).

However, a minister's parsonage or housing allowance is not considered compensation for purposes of these plans. PLR 200135045.

Additional Resources for Clergy & Tax Issues
Below you can find links to additional resources that may be of some benefit to you in your research. These links will take you away from our website, but we think that these sites have excellent information about the subject. Please feel free to return to our site as often as you wish. We appreciate the opportunity to share this information with you.

Click on this form for church use. It is to be included in the official record of the annual meeting minutes of the church board for the annual housing/parsonage allowance of the pastor or clergy member. The form can be edited as needed. Here is the document in .pdf format. Insert for Minutes of Meeting to Approve the Housing/Parsonage Allowance.

Also, you may download the second form, "Pastor's Estimate of Home Expenses"