Guide
Parsonage or housing allowance: how each works
Ministers can receive housing tax-free for income tax in two ways: the church provides a home (a parsonage), or it pays an allowance for the minister to provide their own. Both are included in earnings for Social Security.
A church-owned parsonage
- The rental value of the home is excluded from your income tax.
- If the church pays utilities for you, they are excluded too.
- You do not need a designation for the home, but you may need one for any allowance for utilities or furnishings you pay yourself.
- For Social Security, the fair rental value of the home plus utilities counts as ministerial earnings.
A housing allowance for your own home or rental
The church designates part of your pay as housing allowance in advance, by a resolution recorded in its minutes. You can then exclude from income tax the least of:
- The amount designated,
- The amount you actually spend providing a home, and
- The fair rental value of the home, furnished, plus utilities.
Try it with our housing allowance calculator. Build your actual total with the expense list, and ask your church with the request letter.
What counts as housing expense
- Rent or mortgage payments.
- Utilities and basic services.
- Property taxes and homeowners or renters insurance.
- Repairs, maintenance, and cleaning supplies.
- Furniture, appliances, and decorating.
Food and hired household help are generally not included.
You can still deduct mortgage interest and property taxes
Ministers who itemize can deduct home mortgage interest and real estate taxes on Schedule A even when those costs were paid with tax-free housing allowance. This is an exception to the general rule against deducting costs of tax-exempt income.
The self-employment tax catch
Neither a parsonage nor an allowance reduces self-employment tax, which is about 15.3% of 92.35% of earnings including housing. See the SE tax calculator.
Common mistakes
- Designating after the fact. The designation must come before the pay period it covers.
- Designating too little, which caps the exclusion even if you spend more.
- Designating too much, which makes the unspent excess taxable.
- Forgetting that state rules vary on whether the allowance is excluded.