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Your church should not be too conservative in designating a housing allowance. The pastor cannot exclude from taxable income an amount more than the church-designated allowance. So, your church may want to designate an allowance in excess of a pastor's estimated housing expenses for the new year.
Include any amount of the allowance that you can't exclude as wages on line 1 of Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors. Enter \u201cExcess allowance\u201d and the amount on the dotted line next to line 1.
Any unreimbursed business expenses a minister incurs, such as automobile expenses, professional dues, and publications, are deductible in full (except for the 50% reduction for meals and entertainment) 30 from self-employment income, even though these expenses are not deductible in full in calculating taxable income.
A minister can designate up to 100% of their salary be paid to them as a housing allowance. However, the IRS states that the maximum amount it will allow to be excluded from gross income is the smallest of the following: 1. The amount actually paid to provide for the personal residence for the year, 2.
The median housing allowance for full-time solo pastors breaks down as follows by church income: $250,000 or less per year: $18,000. $251,000 to $500,000 per year: $25,000.
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For services in the exercise of the ministry, members of the clergy receive a Form W-2 but do not have social security or Medicare taxes withheld. They must pay social security and Medicare by filing Schedule SE (Form 1040), Self-Employment Tax.
A minister's housing allowance (sometimes called a parsonage allowance or a rental allowance) is excludable from gross income for income tax purposes but not for self-employment tax purposes.
Housing Allowance A minister who is furnished a parsonage may exclude from gross income the fair rental value of the parsonage, including utilities. However, the amount excluded can't be more than reasonable compensation for the minister's services.

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