What Is Housing Allowance?
Housing Allowance allows a minister who is ordained, licensed, or commissioned to receive a designated portion of their salary that is excluded from gross income and not subject to federal income tax. The provision recognizes that a minister often uses their home as part of their regular duties.
The Minister's Housing Allowance is one of the greatest tax benefits available to ordained, licensed, or commissioned ministers and comes from Section 107 of the Internal Revenue Code.
How Does a Minister Receive Housing Allowance?
Whether the minister owns or rents a home, it is essential that his or her employing organization designate a housing allowance. Housing allowances must be:
Adopted by the organization board or leadership
Recorded in written form (such as minutes)
Designated in advance of the calendar year
However, organizations that fail to designate an allowance in advance of a calendar year should do so as soon as possible in the New Year. The allowance will operate prospectively.
What Are the Minister’s Housing Allowance Responsibilities?
The minister receiving the housing allowance must determine their eligibility, understand the limits, and follow the rules. Ministers must keep records to substantiate the amount they include when calculating housing expenses.
Eligible expenses include:
mortgage payments (principal and interest)
rent payments
real estate taxes
property insurance
utilities (gas, electricity, water, sewer, garbage pickup, local telephone service)
appliances and furniture (purchase or rental cost and repairs)
remodeling expenses
homeowners' dues
pest control
The housing allowance may not exceed the lesser of 100% of compensation or actual housing expenses.
Who Approves the Housing Allowance?
A housing allowance must be board-approved and designated in writing by the organization before the beginning of the calendar year. It cannot be designated retroactively, meaning it must be established before the minister earns the income on which the organization designates the housing allowance.
Housing Allowance Distributions
A housing allowance distribution is a withdrawal of money from your employer-sponsored retirement plan. The amount of your distribution used for housing expenses does not have to be reported as income on your annual tax return.
So how do you know if you’re eligible to take distributions with special housing allowance treatment?
There are two general requirements—first, you must be at least age 59½ and second, you must receive a Housing Allowance Authorization letter from your plan’s governing body. You can access more information on this topic through Envoy’s online Help Center.
Once you’re eligible, you can begin taking distributions.
Here are some general rules:
You can request a one-time distribution or a recurring periodic distribution...whichever best meets your needs.
You can request either the entire distribution or just a portion of it to be treated as a Housing Allowance distribution. Keep in mind, you’re going to need to demonstrate that the amount that you took for the Housing Allowance Distribution was used to cover Housing Allowance related costs.
Did you know that you can make changes to your recurring periodic distributions at any time? Simply submit an updated online distribution request or form.
What if I’m participating in the PCUSA Defined Benefit Plan?
It’s important to note that if you are currently participating in the PCUSA Defined Benefit Plan and are taking Housing Allowance distributions from that plan, the amount of that distribution plus the amount that you are taking from your ECO 403()b plan cannot exceed your total housing allowance amount.
For more information on housing allowance distributions, please visit Envoy’s online Help Center at support.envoyfinancial.com or just give us a call at (888) 879-1376.