So sadly, unless you have that religious exemption form filed, you have to pay on both the federal income and the housing. This is because it is a tax off of the TOTAL amount you bring in as it "sees" housing as a form of income. I hate it as we don't receive the monetary value of the housing allowance as we live in the church provided parsonage but it gets taxed at the fair rental value. At least that's how we've been doing it for the past 10 years but I am not a tax professional.
