By Seth Hawkins
Whether you’re breaking bread with new neighbors, celebrating a joyous occasion or lamenting grief with a trusted friend, what makes a house a home is the people coming in and out of its doors. So it is with vocational ministry; it may begin inside the church building, but ministry often extends to and through the walls of a pastor’s home. You share your time and steward resources without the expectation of the traditional 9 to 5.
The IRS acknowledges this reality by allowing minister’s housing allowance — a federal income tax exclusion — for licensed, commissioned or ordained Ministers of the Gospel. This helps set aside some income to be used exclusively for housing needs.
At GuideStone®, our vision is that every servant of Christ finishes well. We want to help you be financially resilient and equipped to continue in your calling — and for ministers, this includes understanding the what and the how of housing allowance.
American pastors save $800 million per year through this valuable benefit, according to Christianity Today*, but many still have not taken the necessary steps to experience the financial impact it can have. One major reason pastors miss out is that a housing allowance designation must be made, approved and recorded before the year it is effective.
If you’re reading this before the new year, it’s time to have your church make your designation.
Here are three steps to help get started:
1. Add a housing allowance discussion to your church agenda before the end of the year.
Housing allowance designations cannot be made retroactively, so it’s critical to make time to meet with your church leadership to discuss and determine the amount for your annual designation. Depending on your church, the governing board or body could be:
- Congregational vote
- The deacons
- A personnel or finance committee
The official housing allowance amount must be made in writing, typically through a resolution. Note that the IRS also recognizes designations included in employment contracts and budget line items, assuming the designation was adopted in advance by the church.
2. Calculate your housing expenses.
Eligibility requirements may vary depending on your situation. For example, if you live in a church-owned parsonage, this can change the amount you are able to claim as a housing allowance.
Ministers who own their home can exclude the lowest of the following three amounts from federal income for tax purposes when your church employer properly designates a housing allowance for you:
- The total housing allowance designated by their church
- Actual housing expenses (including mortgage payments, utilities, insurance, improvements, furnishings, etc.)
- The fair rental value of the home (furnished, plus utilities)
The GuideStone resource, Ministerial Tax Issues, includes a downloadable worksheet on page 21 to calculate your actual housing expenses. A completed housing allowance expense worksheet will assist your church in determining an appropriate amount for you to designate each year.
3. Create a plan for keeping track of your expenses.
You must substantiate your housing expenses, so it is recommended to save all housing-related receipts in case the IRS examines your tax return. (If a church designates more than you can claim as a housing allowance, you are responsible for reporting this amount as “other income – unused housing allowance” on your year-end taxes (IRS Form 1040)). To easily keep track of your receipts, you might consider creating a spreadsheet or only using one credit card for housing expenses. Or maybe you prefer to keep paper receipts the old-fashioned way. Whichever system works best for you, staying organized will help ensure everything is accounted for when you file your taxes.
For a comprehensive look at your compensation, use our compensation planning resources. In addition, our GuideStone Members receive exclusive access to our Ministers’ Tax Guide every year.
Looking Ahead: Housing Allowance in Your Retirement Years
Housing allowance is not just limited to your working years; under Revenue Ruling 75-72, retired ministers may claim it on retirement income received from a denominational pension board such as GuideStone. In retirement, the maximum amount that can be claimed as a housing allowance from your 403(b) is the lesser of:
- Your actual housing expenses or
- The fair rental value of your home (furnished, including utilities).
If over age 55, retired ministers may request GuideStone designate up to 100% of their ministry-earned retirement income as housing allowance.The initial request for a housing allowance designation during retirement is made on the GuideStone retirement income or online withdrawal application, and changes thereafter can be made prospectively. Keep in mind that this retirement benefit is only available through a 403(b)(9) church plan; it cannot be used from an Individual Retirement Account (IRA) or investment account.
If you haven’t already, enroll in a GuideStone® 403(b)(9) church plan to:
- Experience a ministry-minded retirement plan
- Gain access to industry-recognized, faith-based investments
- Extend your housing allowance benefit into your retirement years
- Receive exclusive SBC state convention benefits
Whether utilized during your pastorate, during your retirement years or both, minister’s housing allowance provides significant tax savings when approached proactively. Take a moment to make sure your housing allowance is designated appropriately. Your future self will thank you.
- Understanding Minister’s Housing Allowance
- Commonly Asked Questions About Minister’s Housing Allowance
- Ministers’ Tax Guide with exclusive access for GuideStone members
- Ministerial Tax Issues
- Tax Answers for Ministers
If you have more questions or need additional assistance on retirement planning, you may reach a customer solutions specialist by calling GuideStone at 1-888-98-GUIDE (1-888-984-8433), Monday through Friday, from 7 a.m. to 6 p.m. CT.
For tax questions, you may also choose to contact a certified tax professional who is familiar with ministerial taxes.
This educational information is not intended as legal or tax advice. Ministers or churches with specific legal or tax questions should consult a legal or tax advisor who understands ministerial tax issues.
Seth Hawkins provides leadership to GuideStone’s Retirement Solutions team that serves institutional clients. Since joining the GuideStone in 2008, he has provided leadership to various areas, including Customer Solutions, Retirement Product Management, Mission:Dignity® and Insurance Product Management.
Seth holds a bachelor’s degree from Howard Payne University, an MBA from Texas A&M Commerce and is a CERTIFIED FINANCIAL PLANNERTM professional.
Seth grew up as a pastor’s kid (PK) and missionary’s kid (MK), spending most of his formative years living overseas where his parents served as church planters. It was this experience that fueled his passion for serving those who serve the Lord®.
Today, Seth spends most of his free time entertaining his three young children. When time allows, he enjoys traveling, hiking and staying active.