Upon retirement, the IRS allows credentialed ministers of all established church denominations to declare a housing allowance on distributions from their 403(b) retirement accounts. That means the portion of your distributions used for housing expenses is excludable from gross income for income tax purposes. This can save you significant money during retirement.
Did you receive a Form 1099-R? If you did. you should enter it in TurboTax as follows:
If you're not already on the 1099-R screen, open your return, search for 1099-R, and select the Jump to link in the search results. Follow the directions to import or manually enter your 1099-R.
How you account for the exclusion depends on whether or not box 2b (taxable amount not determined) is checked.
If box 2b is checked
Enter the appropriate taxable amount in box 2a of the Enter your 1099-R details screen.
- Enter the amount in box 1 as it's shown on your 1099-R
- Subtract your documented housing expenses from the gross distribution amount in box 1 and enter the result or zero (whichever is greater) in Box 2a - Taxable amount
- Check Taxable amount not determined box is checked in the box 2b section
- Enter the rest of your 1099-R as you see it
If box 2b is not checked
- Enter your 1099-R exactly as you see it and complete the 1099-R section
- Search for other reportable income and then select the Jump to link in the search results
- Answer No to Did you receive any other wages? and select Continue
- Scroll all the way to the bottom of the Let's Work on Any Miscellaneous Income screen and select Start next to Other Reportable Income
- Answer Yes to Any Other Taxable Income?
- On the Other Taxable Income screen, type Clergy Housing Allowance in the description and enter your documented housing expenses as a negative number up to the amount reported in Box 2a Taxable Amount (precede the expenses with a minus sign, like -10,000)
This will remove the nontaxable portion from the distribution reported on your 1099-R.
You cannot take a housing allowance from an IRA in retirement, even if you used your pastoral compensation to fund it. Neither can you claim a housing allowance from your Social Security benefits, even if you paid into the system as a pastor.
Your maximum allowed housing allowance is the least of: the amount actually used to provide or rent a home; the fair market rental value of the home (including furnishings, utilities, garage, etc.).
To qualify for the retirement allowance you must meet these requirements:
- Did/do you hold ministerial of an established church denomination?
- Did you receive compensation for ministerial duties?
- Do you have a 403(b) retirement account with a church fellowship/denomination?
- Have you made contributions out of your ministerial earnings into your 403(b)?
- Are you currently retired, as defined by the IRS?* (See note below.)
If you answered “yes” to ALL FIVE questions, you may qualify to receive a retired minister’s housing allowance from the IRS. This benefit becomes available when two conditions are met. First, you must be eligible to receive distributions from your 403(b). This usually happens no earlier than age 59½, except under certain conditions specified by the IRS and your plan. Second, as noted in question five above, you must be retired.
Click here for instructions on entering your 1099-Rfor housing or parsonage in TurboTax.
Click here for additional information on Ministers and taxes.
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