A minister’s housing allowance (sometimes called a parsonage allowance or a rental allowance) is excludable from gross income for income tax purposes but not for self-employment tax purposes. the fair market rental value of the home (including furnishings, utilities, garage, etc.).

How is parsonage calculated?

Example Of Parsonage Allowance Tax Calculations To figure your gross income for income taxes, you would subtract your cash housing allowance from your pay for a total of $35,000. ($40,000 + $12,000 + $3,000 = $55,000) Your SECA taxes are then 15.3% of $55,000 even though you only actually receive $40,000 in real money.

What can be included in parsonage allowance?

A minister who receives a housing allowance may exclude the allowance from gross income to the extent it’s used to pay expenses in providing a home. Generally, those expenses include rent, mortgage interest, utilities, and other expenses directly relating to providing a home.

Do pastors get tax breaks?

Ministers can exclude from their income a rental allowance or the fair rental value of a parsonage that is provided to them as pay for their services. This exemption applies only for income tax purposes. The exclusion does not apply to self-employment taxes.

How does a parsonage allowance work for a pastor?

The parsonage allowance is for those living in church-owned housing. The cash housing (or rental) allowance is for those who provide their own housing. Today, I want to go deeper into the parsonage allowance. Though parsonages are slowly becoming a thing of the past, many pastors still live in them.

Can a church parsonage be exempt from taxes?

If the pastor continues to live in the home, it becomes, in effect, a church-owned parsonage. In about 15 states parsonages are exempt from property taxes.

Do you have to include parsonage on income tax return?

Housing Allowance. The fair rental value of a parsonage or the housing allowance is excludable only for income tax purposes. The minister must include the amount of the fair rental value of a parsonage or the housing allowance for social security coverage purposes.

How does John Doe use his parsonage allowance?

The church also gives him a $50,000 parsonage allowance per year, which he uses to pay his mortgage, utilities and grocery bills. When John Doe files his tax return at the end of the year, he can exclude the $50,000 parsonage allowance from his gross income.