Parsonage/Housing Allowance Exclusion: Who Qualifies and What You Get
Learn how ordained ministers can exclude housing costs from their gross income for federal income tax purposes.
This scheme allows certain religious ministers to exclude the cost of their housing from their taxable income.
Who it's for
This is for ministers who are ordained, licensed, or commissioned.
What you get
You can exclude the fair rental value of your home, or a specific housing allowance provided by your organization, from your gross income. This means you do not have to pay federal income tax on that portion of your compensation.
What it costs you
To qualify, your housing allowance must be officially designated by your organization's board before the tax year begins. You cannot simply decide to treat part of your salary as housing pay after the year has already passed.
The catch to know
While this exclusion helps reduce your income tax, it does not apply to self-employment tax. You are still required to pay taxes on this amount for self-employment purposes.
How to apply
- Ensure your organization's governing board officially designates your housing allowance in writing before the start of the tax year.
- Keep detailed records of all housing-related expenses.
- Report the allowance correctly on your annual tax filings.
- Review official guidance for specific reporting rules at the official portal: https://www.irs.gov/publications/p517