Who Qualifies for a Housing Allowance?
The Internal Revenue Services’ (IRS) housing allowance benefit can result in significant tax savings for some ministry employees, but not every individual involved in ministry qualifies for this federal tax break. Only those ministerial staff members who are licensed, ordained, or commissioned are eligible for the housing allowance benefit.
Ultimately, the way in which the church defines a ministerial position doesn’t matter. Only those employees defined by the IRS as a “minister for tax purposes” can claim a housing allowance.
IRS Definition of “Minister for Tax Purposes”
According to the IRS, ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination.
If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes.
Interpreting the IRS Definition of ‘Minister for Tax Purposes’
If you can answer Yes to question 1 and Yes to a majority of questions 2-5, the employee is probably a minister for federal tax purposes.
- Is the employee licensed, ordained, or commissioned?
- Does the employee conduct religious worship?
- Does the employee administer ordinances? (e.g. baptisms, weddings, communion)
- Does the employee have management responsibilities within the church?
- Does the church consider the employee to be a religious leader?
Handling Housing Income for Regular Ministerial Staff Members
Once you’ve determined that a particular employee does not meet the IRS definition of minister, you need to treat any housing income offered to that employee as regular wages. Consequently, the church needs to include the housing income as regular wages with each paycheck, and withhold the appropriate taxes.
If the church does give, or has already given, the employee a separate amount for housing aside from the regular wages, the employee needs to reclassify that housing amount as regular wages by completing a Form 1040 when they file their year-end tax return.
For additional information about housing allowances, download Brotherhood Mutual’s ministry payroll edition of The Deacon’s Bench.