While every career suffers from stereotypes and misconceptions, “priest perks” are frequently misunderstood and housing allowances represent one of the least understood clergy benefits. A little knowledge about this important but oft-misunderstood benefit can help clergy maximize the value of the housing allowance benefit.
Q. What is a housing allowance?
Code Section 107 of the U.S. Tax Code specifies that the housing allowance of clergy who own or rent their primary residence is non-taxable in computing Federal income taxes to the extent that it is declared in advance "by a resolution of the Vestry or Bishop's Committee."
Simply stated, a housing allowance is a portion of a cleric’s salary set aside by the employing church to cover cleric housing. The allowance is typically deducted from the cleric’s “total compensation” at the request of the cleric. For example, a cleric may earn a salary of $45,000 and designate that $15,000 be allocated to a housing allowance. Thus, his or her reported salary would be $30,000.
Q. What does the housing allowance include?
The housing allowance ordinarily equals the fair rental value of the clergy-provided housing, including furnishings, plus estimated utilities. Any excess housing allowance beyond the fair value must be reported by the cleric as taxable income on Form 1040.
Q. Why is the designation of a housing allowance such an important benefit?
Code Section 107 of the U.S. tax code specifies that the housing allowance of clergy who own or rent their primary residence is non-taxable in computing federal income taxes to the extent that it is declared in advance, used for qualified housing expenses and does not exceed the fair rental value of the cleric’s furnished home and utilities.
Q. How is the housing allowance reported for state vs. federal taxes?
Qualified housing expenses for clergy who own/rent or the fair value of “rent-free” church-provided housing are non-taxable when computing federal income taxes and most (although not all) state income taxes. However, they are taxable when computing self-employment taxes. Clergy in church-provided housing must include the fair rental value of church-provided housing as income when computing self-employment taxes. Additionally, any housing provided to a cleric that is excludable from taxable income pursuant to Code 119, under the convenience of the employer statute, also must be included in the cleric’s taxable income when computing self-employment income.
Q. Can a clergy leader claim a housing allowance for another property he or she owns while living in church-provided rent-free housing?
Clergy living rent-free in housing provided by the church are not allowed to claim a housing allowance for any other real property that they own.
Q. How do I determine the fair rental value of my housing?
A worksheet is available at to help you calculate the value of the home, furnishings and utilities. A real estate agent can also put an estimate in writing to document the value.
Expert Source: Marsha Gebuhr, Canon for Administration, The Episcopal Diocese of Indianapolis