MINISTER'S COMPENSATION WORKSHEET

This YearNext Year

A.Cash salary, less designated housing/furnishings $_________________ allowance

B.If parsonage owned by church, fair rental value_________________ including utilities and any housing/furnishings allowance

C.If parsonage not owned by church, cash housing _________________ allowance provided (plus utilities, maintenance, or any other housing expenses paid directly by church)

D.Tax deferred payments (TSA, 401 (k), IRA)_________________

E.Cash bonus_________________

F.Other_________________

Total Salary ________ _________

FRINGE BENEFITS:

A.Denominational pension fund__________________

B.Social security reimbursement__________________

C.Medical expense reimbursement__________________

D.Insurance premiums paid by church

1. Health__________________

2. Disability__________________

3. Long-term care__________________

4. Group-term life__________________

5. Dental/vision__________________

6. Professional liability__________________ 7. Malpractice__________________

E.Other__________________

Total Fringe Benefits

PROFESSIONAL EXPENSE REIMBURESMENTS: (limited to ordinary, necessary, and actual expenses)

A.Auto/travel__________________

B.Books/subscriptions/tapes__________________

C.Continuing education__________________

D.Conventions/conferences__________________

E.Professional dues__________________

F.Church-related entertainment__________________

G.Child care__________________

H.Other__________________

Total Professional Expense Reimbursements

Housing Allowance and Self Employment

Most ministers are entitled to receive a housing allowance as part of their salary. Simply put, this means that ministers are eligible by law to receive a tax break by designating a portion of their salary as housing allowance. However, it should be understood that a housing allowance is neither an exclusion from income nor a deduction because it is never reported as income. This portion of salary is not reported on a W-2 as income; therefore, it is not taxed. For instance, if my church were to pay me $40,000 per year and I were to designate $20,000 for housing allowance, my end of the year W-2 would show that I had made $20,000 for the year.

Who Qualifies?

Ministers of the Gospel are the only taxpayers who qualify for a tax-free housing allowance under Section 107 of the Internal Revenue Code. Most professional ministers qualify for a housing allowance. Ordained ministers almost always qualify and sometimes licensed and commissioned ministers qualify as well. The following criteria serve as a guide to check for qualifications:

1. Must be licensed, ordained, or commissioned by a religious body whose governing documents permit such action;

2. Must participate in administering sacraments;

3. Must be considered a religious leader in their church or denomination;

4. Must participate in conducting religious worship; and

5. Must be responsible for management (control, conduct, or maintenance) in a local church or religious denomination.

As seen in the above criteria, this does not allow everyone with the title minister to qualify; however, most professional ministers should qualify. Court rulings on qualifications have differed through the years and could change in the future. Make certain to check with your denominational offices/headquarters or tax lawyer/accountant before setting up any of these items.

Bi-vocational and part-time ministers qualify for housing allowance and could reasonably claim their entire ministerial salary in housing allowance. For instance, if I work as an accountant and work part time as a music minister, I could not claim any of my accountant salary as housing allowance but might feasibly count all of my $12,000 music ministry salary as housing allowance. In this case, if my housing expenses were greater than $12,000, I could only count $12,000.

Retired ministers also qualify for housing allowances as long as a portion of their retirement income comes from a church-related pension fund. This is an excellent incentive for ministers to keep at least a part of their income in a church-related pension fund rather than investing solely in an organization that has for-profit status. The surviving spouse of a minister may not have a housing allowance.

What expenses count as housing allowance?

Generally, all expenses related to the purchase and maintenance of a home can be designated. These include payments toward purchase of a house (including down payment, mortgage principal payments, interest, taxes) or rent on leased properties; garage rental (if not included in above); utilities (gas, electricity, water, local phone, and Internet); insurance; repairs and maintenance (including lawn care, landscaping, updating); purchase or rental of furnishings (as well as repairs); cleaning supplies; homeowners' fees; pest control; and other expenses directly related to the upkeep of a home. Home equity loans cannot be counted as part of a housing allowance unless the home equity loan paid for housing. If a minister's house is already paid for, he/she can count other expenses as outlined above; however, he/she cannot count fair rental value as part of this amount since the house is paid for.

A good way to determine housing allowance is to use a form similar to the one on page 68 as a guide for figuring a housing allowance. You should also keep notes from year to year for easy reference. Paying utilities on an average per month plan helps the minister to more accurately figure his/her estimated utilities for the upcoming year. Also, you should project possible home updates and purchases of major appliances and should allow for funds to cover unexpected emergencies. Ideally the minister should keep monthly records of housing allowance so that he /she can more accurately project housing allowance for the upcoming year. Additionally, if you've incurred unexpected expenses, you may choose to defer expenses/purchases into the upcoming year.

Are there limits to housing allowances?

Ministers who own their homes can exclude the lowest of the following three amounts: (1) the amount designated by the church;

(2) actual housing expenses; or (3) the annual fair rental value of the home including furnishings and utilities. In most cases, a minister can count the actual expenses of paying for and maintaining a home; however, if there are questions regarding this amount, a letter from a realtor stating the fair rental price of your home may be needed. Usually, such a situation might occur in the year of an initial purchase where a large down payment was made or when very large amounts were spent on updating or remodeling and these expenses are not financed or rolled over into an existing loan. In this situation, you might not be able to claim the actual amount spent on housing as housing allowance because of number three above. Ministers with more than one home can claim a housing allowance only on their primary residence.

How is the money designated as housing allowance?

To designate a portion of your salary as housing allowance, you must first determine in advance what the amount of your housing expenses will be. Then, the church must approve (in a business meeting) the amount of your salary that will be designated as salary and the part that will be designated as housing allowance. This action MUST take place prior to the beginning of the calendar year. Although the IRS has recognized oral designations of a housing allowance, this is very risky and should not be practiced. The housing allowance can appear as a part of the budget line item; however, it is preferable to have the church governing body pass a separate resolution. This action cannot be retroactive and cannot be changed within the year. If you spend more money for housing than you designated, you cannot claim more; if you spend less, you will pay taxes on the remaining amount.