Many clergy members have their housing included as part of their compensation, either as a housing allowance or through use of a church-owned parsonage. The IRS’s tax rules related to this type of compensation can be quite confusing, so we wanted to review some of the specifics to help you file your taxes correctly.
For starters, your church, mosque, synagogue, or other employer must clearly designate which portion of your salary is your housing allowance. That’s because this part of your compensation is treated differently than the rest of your income.
Your housing allowance (either cash or the estimated rental value of the parsonage) is excluded from your income for the purposes of determining your income tax. However, your housing allowance is included as part of your income when you determine your self-employment tax. Make sure you’re using the correct parts of your income when figuring both your income tax and your self-employment tax to avoid tax penalties and other problems.
Still not sure how to handle your housing allowance in terms of your taxes? We can help. At Pro Tax Resolution, we have more than 40 years of experience tackling tax problems of all shapes and sizes. If you need tax assistance, you’re in the right place! Call now to get started.