Part-Time youth pastor as contract labor or HA?

by Kim

My husband is a part-time youth pastor that is paid twice a month as 'contract labor'. Another pastor told us that it would be more beneficial for him to request that the funds be treated as a housing allowance instead. Our tax preparer told us that we saved about $500 on our taxes last year by remaining as contract labor (self-employed) and not claiming housing allowance. Who is correct? I realize it's probably dependent on a few factors, but I would just like to make sure we are doing the most sensible option.

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Part-time pastor as contract labor or HA?
by: Lewis in NC

First, read the qualifications for a housing allowance at the link to the left entitled "Ministers Taxes". It would be more difficult for a part-time youth pastor to qualify for a HA depending on how his other income is generated and what his duties are at the church. Read about the approx. five qualifications for a HA at the mentioned link.

If he does qualify for a housing allowance, it would be possible to save a little on income taxes in that federal and state income taxes would be excluded on the amount of the qualifying housing allowance. However, he must pay self-employment taxes of approx. 15.2% on the housing allowance for Social Security taxes--the church generally does not pay one-half of this for ministers.

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