How does the housing allowance benefit a pastor?

A pastor does not pay federal income tax on that portion of his income which is considered to be his housing allowance*. The housing allowance is the smaller of the following: The amount designated by the church to be considered housing allowance.  (This is limited to ministry income, but 100% of ministry earnings can be designated as housing allowance). The amount actually spent to provide a home (see below: What expenses are included in the housing allowance?) The FMRV (Fair Market Rental Value) of the furnished home plus actual expenses. The FMRV takes the place of the mortgage payment (including closing costs, down payment, principal, interest, taxes, insurance) and major repairs.

*Housing allowance (parsonage value, church paid utilities and designated cash portion) is always subject to social security and Medicare taxes.

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.