At the end of the year your cash salary will be divided into “salary” and “used housing allowance”.  When designating a housing allowance your goal should be to guarantee you will be able to claim all of your out of pocket expenses as housing.  If your housing allowance designation is too low you will be stuck with this lower amount even if your expenses exceed it.  In addition, you do not want your housing allowance designation to be so close that if you have an unexpected expense it will not be covered.  Because you must always designate the housing allowance in advance, you should over-designate your housing allowance.  Aim to have unused housing at the end of the year.  When you have unused housing allowance at the end of the year it means you were able to claim all of your housing expenses and you were not limited by the amount you designated.

Designate the housing allowance in a regular church/board meeting.  Use the following wording:

Insert for Minutes of Meeting to Approve the Housing/Parsonage Allowance

1.  It was discussed that under the tax law a minister of the gospel is not subject to federal income tax on the “housing allowance paid to him as part of his compensation to the extent used by him to rent or provide a home.”

2.  The parsonage owned by the church has a rental value of $____________ and is provided for the convenience of the church.  Actual utility expenses will be paid by the church and they will amount to approximately $__________________ for the year.

3.  After considering the statement “Pastor’s Estimate of Home Expenses” (see next page) prepared by ____________________, a motion was made and seconded and passed to adopt the following resolution:

4.  Resolved that Pastor _______________________ is to receive a total cash remuneration of $________ (salary) for the year 20____. Of this amount, $_______ (housing expenses paid from salary) is hereby designated as housing allowance.

5.  Resolved that as long as Pastor _____________ is our employee the above amount of housing/parsonage allowance shall apply to all future years until modified.

Date____________ Signed__________________________________

Note: Using the above insert for the minutes is probably the most convenient for church use. The names of the individuals making the motion and seconding it should be included. If the church does not provide the home and pay the utilities, then the second paragraph is to be omitted. All out of pocket costs in providing your home are to be included in paragraph 4. IRS regulations state that the housing allowance should be designated in writing each year.