Question: Our church is increasing our pastor’s compensation. I am not sure how much more he can claim as housing or if we handle it differently related to payroll reporting?
Answer: Typically the Council can set any amount as his compensation. The housing allowance can be amended at any time. It needs to be in writing and the approval needs to be in advance of any change. A minister can request a portion of his compensation be set aside as a housing allowance. He can not request the housing portion greater than the total compensation but can request it all. Any portion unused to cover qualifying housing expenses must be claimed by him as income on his tax return. You must still file a W-2 at the end of the year. If the compensation is low and they claim it all, W-2 boxes 1-4 may be $0, but the housing amount is placed in box 14 with the word “Housing” next to it.
Side Note: I do not recommend that full-time pastors claim all of their compensation as housing. It may raise red flags at the IRS. This is simply my recommendation. It is different for bi-vocational or part-time pastors who can easily use up all their compensation with housing expenses.
On his taxes the housing exclusion must be the lower of:
1. Actual housing cost spent
2. Housing allowance received
3. Fair rental value limitation of his domicile.
Qualifying housing expenses include:
Ø Down payment on a home purchase
Ø Up fitting costs after a home purchase
Ø Mortgage payments including P&I
Ø Property tax and hazard insurance
Ø Refinancing costs
Ø Home improvements or additions
Ø Large home repairs
Ø Appliance replacements
Ø Additional principal payments on the mortgage
Ø New furniture or home furnishings purchases
Ø Utility costs including telephone
Ø Landscaping
Ø Cable TV and security monitoring
Ø Insurance
Fair Rental Value Limitation = Fair Rental Value of Home + Fair Rental Value of Furnishings + Total Utilities (est.)
Fair Rental Value of Home = Home Fair Market Value (not original cost) X 12% (1% per month)
Fair Rental Value of Furnishings = Home Fair Market Value X 20% (industry standard)
Total Utilities = Amount of water, sewer, electric, heating fuel, etc.
Blog Author
- C. Paul Glenn
- is the Executive Director of Finance & Operations at Grace Covenant Church in Cornelius, NC. He is also Chairman of Harvests of Hope Int'l. He has an accounting degree from Oral Roberts University and has been married to Susan since 1989. They have two children. Prior to ministry Paul packed a wealth of experience into his career path which includes positions as a public accountant, a financial analyst, a controller and CFO, as well as a management consultant. His pastor’s heart guides a passion to oversee the business aspects of ministry to (1) see the lost find Christ and (2) to allow other pastors and leaders to more freely shepherd their congregations. He regularly consults churches regarding his unique insights on church construction and is also coaching and mentoring over 120 churches in aspects of administration. Working with a team to found Harvests of Hope Int'l he now has the privilege as its Chairman to bring hope to families affected by HIV/Aids throughout Africa.
Thursday, May 15, 2008
Subscribe to:
Post Comments (Atom)
0 comments:
Post a Comment