What Is the Minister’s Housing Allowance?

The minister’s housing allowance (also called the parsonage allowance or clergy housing allowance) allows ordained ministers to exclude a designated portion of their compensation from federal income tax when used for housing expenses. It is authorized under IRS Section 107.

Who Qualifies?

• Ordained, licensed, or commissioned ministers
• Ministers who perform ministerial services as their primary function
• Ministers employed by a church, denomination, or qualifying religious organization
• Bi-vocational pastors who are ordained and perform ministerial duties

What Expenses Qualify?

• Rent or mortgage payments (principal and interest)
• Property taxes and homeowner’s insurance
• Utilities (electricity, gas, water, internet)
• Furniture and furnishings
• Home repairs and maintenance
• Lawn care and landscaping

How to Designate the Housing Allowance

The housing allowance must be designated in advance by the church board or governing body. It cannot be designated retroactively. The designation should be:

1. Approved by the church board before the start of the calendar year (or before the minister begins employment)
2. Recorded in the official board minutes
3. Set at a reasonable amount — the lesser of: (a) the designated amount, (b) actual housing expenses, or (c) the fair rental value of the home furnished and with utilities

Important Limitations

• The housing allowance cannot exceed the fair rental value of the home (furnished, plus utilities)
• It must be used for housing expenses in the same year it is designated
• It is still subject to self-employment tax (SECA) even though it is excluded from income tax
• Ministers who own their home may exclude the lesser of the designated amount, actual expenses, or fair rental value

Important: This guide is for educational purposes only and does not constitute tax or legal advice. Consult a CPA or tax attorney familiar with clergy tax law before making decisions about your housing allowance.