Written by a Stakeholder at Xcelerate, Adrienne Weir (aka an Xcelerate Founding Mother)
Professional articles come and go. In just one search on Google, you can find a plethora of opposites. Legislation passes and the world moves on. We try to be “in the know” on those things that directly affect us, but sometimes keeping up with the national narrative regarding taxes is not a priority.
We get it! It’s taxes!
You can easily convince me to watch the NCAA tournament that begins this week- I’m in! But, tell me that I need to follow the court decision to see if the minister’s housing allowance will be called unconstitutional- Seriously?
And yet, this has been the very piece of news that our payroll department has been tracking. Not only tracking the news but praying for the verdict. And this week, we got the good news:
From an ECFA announcement- “In its highly anticipated opinion on March 15, 2019 the U.S. Seventh Circuit Court of Appeals unanimously reversed a lower federal district court, which had ruled in late 2017 against the longstanding housing allowance for ministers. Instead, the appeals court likened the ministers’ housing allowance to other similar benefits in the tax code for work-related housing, finding the provision permissible under the First Amendment and well-established legal precedent.”
So, what is the minister’s housing allowance?
The ECFA actually calls it “The Best Friend of Ministers”.
They go on to say that “a properly designated housing allowance may be worth thousands of dollars in tax savings for ministers living in their own home or rented quarters.” The housing allowance excludes dollars from gross income for income tax purposes.
Think about your own W2. You have listed on your W2 your annual gross wages. Assume for a minute that equals $50,000. Let’s say that you determine that you spend $24,000/year on designated housing expenses. Instead of your W2 showing $50,000 as wages for federal tax purposes, it would only show $26,000, with the remainder mentioned in a different box on W2. Not only do you have less reported income to pay tax on, savings like this could bump you down to a lower tax bracket!
Is this too good to be true? No, it’s not! But, as mentioned earlier, you have to designate a housing allowance properly, and you cannot make it retroactive.
One caveat is that the housing allowance is an exclusion from income tax. You would still have to pay self-employment tax on the full $50,000. But, you would be paying that anyway, so this is a huge tax break each year!
In future blog posts, we will share more about the housing allowance and how to set it up properly for your church. For any immediate questions, please reach out to us. We would love to talk through more about this benefit, especially since it ought to be around for years to come.
Also, a big THANK YOU to our partner ECFA for actively defending this!