Pastor Package w/ Parsonage & Housing Allowance

by Lynda
(Iowa)

Our church has just created a Finance Board and I have been elected chairman. The finances in our church lack in some areas. We are using an Interim Pastor and the package that was put together for him was
Salary $6,000
HA $10,600
Church provided parsonage rental value of $7,800
Church will pay the utilities estimated to be at $4,800 Reimbursable expenses of $3,000.

It was also agreed upon verbally that he would do some work around the parsonage and the paint and supplies would be reimbursed to him.

Now I have subscribed to this site for over a year now and find it very beneficial and appreciate all the work that Vickey does for it. After reading the ebooks, and newsletters that come I am somewhat uncomfortable that the pastoral package we have put together is not the best solution for both the pastor and the church.

It seems to me that #1 the paint and supplies that was verbally agreed upon should go under the HA. The church paying the utilities seems ok, but don't understand the advantage of the church paying these bills over designating an amount and include it with the HA.

The balance between the HA and salary seem a little backwards. Questions that I have is if it is a church provided parsonage and the church is paying the utility bills why would the HA be so high? It is my understanding that the pastor will have to be able to account for the housing expense money or it is turned into income, is that not correct? And is this income then subject to Fed tax?

I know this is a lot of information but wanted to give a full picture and would be very interested in comments that help me understand the breakout of these numbers. It is my goal that our church is providing a fair package to our pastor.

thanks in advance.

Comments for Pastor Package w/ Parsonage & Housing Allowance

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Housing Allowance and a Parsonage
by: Vickey

In regards to your first question...
if it is a church provided parsonage and the church is paying the utility bills why would the HA be so high?

I agree. The housing allowance seems quite high with the church providing a parsonage and all utilities paid, but that could be resolved by having him fill out a housing cost estimate worksheet before the beginning of each year and adjusting the housing allowance accordingly.

Side note: You do know the the fair rental value of a parsonage provided to a pastor (including the cost of any utilities and furnishings provided) must be included as self-employment earnings subject to the self-employment tax (unless he has opted out of SS). (See IRS Publication 517).

In regards to your second question...

It is my understanding that the pastor will have to be able to account for the housing expense money or it is turned into income, is that not correct? And is this income then subject to Fed tax?

Correct! If the amount designated as a housing allowance is greater than the actual housing expenses then the pastor would be responsible to report the difference as "other income" on his IRS Form 1040, line 21.

For some tips on handling this situation, see question 19 on this page:
https://nccumc.org/treasurer/files/housingallowanceqa.pdf
Add'l ?
by: Lynda

So is this right? If the housing allowance is not spent on items to maintain the home then that money is turned into salary. And the pastor is responsible for the documentation of this housing allowance. And pastor should have receipts for these items.
Pastor Package w/Parsonage & (?)Housing Allowance
by: Lewis in NC

My goodness. . . this does sound complicated and an odd combination of factors for a salary package. There must be other reasons for it than has been stated so far. You say this is an interim pastor, and does this interim pastor by chance own a home at another location somewhere that he is investing in? Otherwise, why would the cash housing allowance be of interest to him. The cash housing allowance must be spent for the pastor's household expenses (somewhere) or else it would become taxable income to him. It doesn't make sense to me that he would spend his cash housing allowance on the church parsonage (or maybe you didn't mean to imply that). If the interim pastor does not own a house for this cash housing allowance to be spent on, then it makes little sense to me how this is to work. Hope this helps and doesn't confuse more.

This writer is a member of a United Methodist church in Western NC. The United Methodist Church Book of Discipline says we either provide a (specific) parsonage for our assigned minister or we must provide a $15,000 cash housing allowance per year in addition to his/her salary for our minister to purchase his/her own house. I (too) like many church leaders have had questions about salary packages for ministers as it involves the question of housing allowance.

IRC 107 (housing allowance tax law) was originally written to help churches with salaries for pastors, but the original intent (according to my non-lawyer mind) was for the housing allowance to be an exclusion from within the pastor's salary--not an extra cash payment in addition to salary. Your church should probably seek legal advice from a paid professional who deals with this sort of thing in setting up this package.
Clarification
by: Anonymous

Yes, that is correct.
Question???
by: Lewis in NC

For clarity in our thinking. . . you are paying, in addition to the $6,000 cash salary for the year, a "cash" housing allowance of $10,600. Correct?

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