Amending the Housing Allowance

The Housing Allowance can be amended (changed) as often as needed.  We always recommend overestimating when designating a housing allowance.  The goal would be to have enough of a buffer in the designation to end up with unused housing at the end of each year.  This eliminates the need to amend a housing allowance mid-year and, guarantees that a pastor will not be limited to the amount of his designation, but will be able to exclude all his housing expenses from income tax.  It never hurts to designate too high, but it can hurt to designate too low.

At the end of each year your salary will be divided into two parts:  taxable salary and non-taxable housing allowance.
It looks like this:  You have a salary of $60,000 and you spend $30,000 in housing:

(#1)  you had only $20,000 designated.  Your taxable salary would be $40,000 and your non-taxable housing allowance would be $20,000 since you are limited to the amount designated.

(#2)  you had $40,000 designated.  Your taxable salary would be $30,000 and your non-taxable housing allowance would be $30,000 because you would be limited to the amount you actually spent on housing.

Theoretically there is no reason to lower a housing allowance since any unused housing would be considered taxable salary at the end of the year.  Lowering a housing allowance is not necessary even in the event of a decrease in pay.  Since the amount designated as housing allowance cannot be more than 100% of salary an amount designated that is higher than the salary would result in 100% of the salary being considered the designated housing allowance.

There can be a legitimate need to increase a housing allowance.   The issue to keep in mind when amending a housing allowance is the fact that a housing allowance is never retroactive.

When it comes to the retroactive prohibition, there are two aspects of the housing allowance that need to be considered:

  1.  A housing allowance is never retroactive when it comes to the expenses you pay.
    This means you can not “go back” and pick up expenses you have paid and consider them to be a part of your used housing allowance at the end of the year if you exceeded your designated housing allowance at the time you paid them.
    It looks like this:  if your designated housing allowance on May 31st was $15,000 and you had spent $18,000 on housing expenses at that point then you cannot “go back” and pick up the extra $3,000 of expenses by amending your housing allowance.  You can amend your housing allowance so that you will be able to include your housing expenses from May 31st thru the end of the year but you have lost the ability to claim those extra $3,000 in expenses.
  2.  A housing allowance is never retroactive when it comes to the salary you receive.
    This means you cannot “go back” and pick up salary you have already been paid and consider that to be housing allowance.  You can amend your housing allowance to include future payments but not past payments.
    It looks like this:  You have a $60,000 salary ($5,000/month) and $20,000 of it was designated as housing allowance at the beginning of the year.  At the end of October you realize you will exceed the $20,000 housing designation.  You can amend your $20,000 housing allowance to a maximum of $30,000 because you will have $10,000 or 2 months wages remaining in the year.
Attention: Tax Law is subject to interpretation. Please be advised that the material contained on this Web site is for information only and is not intended to be a substitute for professional legal advice. The Stewardship Services Foundation endeavors to update the information on this site on a regular basis, but cannot guarantee its accuracy at all times.