Self employed

Generally, the housing allowance is determined as a part of your compensation package and is reported in Form W-2, Box 14.   If you do not have an agreement with your parsonage or there is nothing reported in Form W-2 Box 14, you cannot claim a housing allowance.   If the amount of the housing allowance reported in Form W-2 Box 14 is more than your actual expenses, then the difference is reported as income on Line 1 of your tax return. 

If you receive as part of your salary (for services as a minister) an amount officially designated (in advance of payment) as a housing allowance, and the amount isn’t more than the reasonable pay for your services, you can exclude from gross income the lesser of the following amounts:

• the amount officially designated (in advance of payment) as a housing allowance;
• the amount actually used to provide or rent a home; or
• the fair market rental value of the home (including furnishings, utilities, garage, etc.).

The payments officially designated as a housing allowance must be used in the year received.

If your Form W-2 Box 14 does not show an amount for housing allowance and you would like to request a housing allowance from your parsonage, to determine the amount of housing allowance to request, you should calculate both your anticipated expenses and the fair market rental value of your home. Then request the lesser amount.  How Much Housing Allowance Can a Pastor Claim?

The following Publications contain information on compensation for pastors, ministers and clergy.   These articles may give you some additional information.

Publication 517  contains information for the following classes of taxpayers.

• Ministers.
• Members of a religious order.
• Christian Science practitioners and readers.
• Religious workers (church employees).
• Members of a recognized religious sect.

Ministers' Compensation & Housing

W-2

To enter your housing allowance when reported on a W-2 follow these instructions: 

If you're not already on the W-2 entry screen, open your return. (To do this, sign in to TurboTax and open or continue your return) Then search for W-2 and select the Jump to link in the search results. Follow the instructions to import or manually enter your W-2.

1. When you get to Box 14, enter Clergy Housing in the Description box, followed by the amount. (The amount might be reported to you in a letter from the church or in your employment contract if not on your W-2.) If the allowance isn't automatically classified as Other (not classified), select this option from the dropdown menu. Select Continue.
2. If you get additional screens, answer those questions.
3. When you reach the Let's check for uncommon situations screen, check the box for Religious employment, then select Continue.
4. On the following screen, choose Clergy and select Continue.
5. Enter your allowance on the Okay, Tell Us About your Clergy Housing screen. For Qualifying Expenses, enter the lesser of:
   • Your qualified housing expenses
   • The fair rental value of your housing expenses
   • Your housing or parsonage allowance
6. Select Continue, and on the Clergy Self-Employment Tax screen, choose the appropriate option and Continue again.

When you see the Your W-2 info so far screen, select Edit to view your W-2 information. If the Box 1 amount hasn't been adjusted for your housing allowance, enter a Line 21 adjustment to income. Here's how:

1. Search for other reportable income and select the Jump to link in the search results.
2. Answer No to Did you receive any other wages? and Continue.
3. Scroll to the bottom of the Miscellaneous Income screen and choose Start next to Other reportable income.
4. Answer Yes, and on the Other Taxable Income screen, type Clergy Housing Allowance in the description and enter it as a negative number (precede it with a minus sign, for example -10,000).

Form 1099-MISC

The housing allowance, as stated above, is not taxable but is subject to self-employment tax. Follow the instructions below to enter the housing allowance when reported on a 1099-MISC. 

To enter your housing allowance in TurboTax Deluxe online version, go to:

• Sign in to your account and select Pick up where you left off
• Right upper corner, in the search box, type in “business code”, then Enter
• On-screen, “ Did you have any self-employment income or expenses?” select Yes 
• Follow prompts
• On-screen, “Let’s get income for clergy”, select Additional income then Continue
• Continue to go through more step-by-step interview questions related to clergy
• On-screen, “Let’s look up your business code”, enter 813000 
• Next screen, Clergy and Recognized Religious Sects, select I need to pay self-employment tax on this income, follow prompts to enter information