There is something wrong here. A housing allowance is not considered taxable income, but it is subject to self-employment tax. Assuming the following:
- W-2 with box 1 wages of $16,970
- Housing allowance of $19,000
- Qualified housing expenses equal or more than $19,000
Then, your form 1040 line 1 income should be $16,970 and his schedule SE line 2 income subject to SE tax should be $35,980. That should allow a full IRA contribution.
I can't actually think of any reason why line 1 would be reduced from the amount on the W-2. Even if his housing expenses are more than the housing allowance, that is not allowed to reduce the W-2 box 1 income.
To get a limit of $14,370, I can only think that you did not enter the housing allowance on schedule SE, and you must have also reduced your schedule SE income by some work-related expenses.
To enter the housing allowance subject to SE tax, enter the W-2 and check the box for "religious wages." You will then be prompted to enter the information and choose how it should be taxed. "Pay SE tax on both wages and housing allowance" is the correct answer for almost everyone. The other options are only used in rare situations where the church has taxed your income incorrectly or you have an approved exemption to SE tax on form 4361. (And if you do have an exemption on form 4361, that might interact with the IRA limit in strange ways. I would need to do more research.)
