The entire amount of a minister's housing allowance is subject to social security and Medicare taxes, even though it may be excluded from taxable income for income taxes. A minister's compensation for services as an employee, as well as from self-employment, is subject to Self-Employment Contributions Act (SECA) taxes, not the Federal Insurance Contributions Act (FICA). Under SECA the self-employed person pays all the taxes while under FICA the employer and employee each pay half of the taxes.

However, if you are a duly ordained Commissioned, or licensed minister, or member of a religious order not under a vow of poverty, or a Christian Science Practitioner who elected and was approved for exemption from Social Security coverage and self-employment tax, your housing allowance would not be subject to social security or Medicare taxes under SECA.

References:

• Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
• Form 4361 (PDF), Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders
• Tax Topic 417, Earnings for clergy

A minister's housing allowance, sometimes called a parsonage allowance or a rental allowance, is excludable from gross income for income tax purposes, but not for self-employment tax purposes.

If you are a minister and receive as part of your pay for your services as a minister an amount officially designated as a rental allowance, you can exclude the allowance from income if the amount is used to provide or rent a home. However, the exclusion is limited to the lesser of the fair market rental value (including furnishing, utilities, garage, etc.) the amount officially designated (in advance of payment) as a rental or housing allowance, or the actual amount used to provide a home, and cannot exceed what is reasonable pay for your services.

If housing is furnished to you by your congregation as pay for your services as a minister, the exclusion cannot be more than what is reasonable pay for your services, and is limited to the fair market rental value (including furnishings, utilities, garage, etc.) of the home.

If you own your home and you receive a housing allowance as part of your pay, for your services as a minister, the exclusion cannot be more than the smaller of the following:

References:

• Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
• Tax Topic 417, Earnings for clergy

A housing allowance paid to you as part of your salary is excluded from gross income to the extent you use it, in the year received, to provide a home or to pay utilities for a home with which you are provided. The amount of the housing allowance that you can exclude from your income cannot be more than the reasonable compensation for your services as a minister. The church or organization that employs you must officially designate the payment as a housing allowance before the payment is made. A definite amount must be designated; the amount of the housing allowance cannot be determined at a later date. Other provisions may apply. While not subject to income tax, the housing allowance will included in income for self-employment tax purposes. However, a minister may request exemption from self-employment tax. For additional information on housing allowances, refer to Chapter 6 of Publication 17, Your Federal Income Tax or Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers. For information on earnings for clergy, refer to Tax Topic 417.

References:

• Publication 17, Your Federal Income Tax
• Tax Topic 417, Earnings for clergy

Usually, the total of household expenses is only used as a limit to the amount of excludable parsonage allowance (for an ordained, commissioned, or licensed minister). A parsonage allowance or the fair rental value of a parsonage provided as pay for a minister's services is excluded from gross income for income tax purposes only, not for the computation of self-employment tax.

While the excess cannot be deducted, it is helpful to prepare a worksheet like the one labeled "Attachment 1," shown as part of the comprehensive example at the end of Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers. This worksheet, when completed, reflects the amount of income you've received, your qualified expenses, and your tax-free (excluded) income. If your expenses exceeded the amount of your parsonage allowance, your allowance will be fully excludable for income tax purpose provided the amount would not exceed an amount which represented reasonable pay for your services as a minister.

References:

• Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
• Tax Topic 417, Earnings for clergy

To the extent that your household expenses are less than your parsonage allowance, your allowance is taxable income for income tax purposes.

If you receive as a portion of your pay for your services as a minister an amount officially designated as a rental allowance, you can exclude the allowance if the amount is used to provide or rent a home. However, the exclusion is limited to the lesser of the fair market rental value (including furnishings, utilities, garage, etc.), the amount officially designated as a rental or housing allowance (prior to payment), or the actual amount used to provide a home, and cannot exceed what is reasonable pay for your services.

If housing is furnished to you by your congregation as pay for your services as a minister, the exclusion cannot be more than what is reasonable pay for your services, and is limited to the fair market rental value ( including furnishings, utilities, garage, etc.) of the home.

If you own your home and you receive a housing allowance as part of your pay, for your services as a minister the exclusion cannot be more than the smaller of the following:

The amount of the allowance that cannot be excluded should be entered with your wages on line 7 of Form 1040, U.S. Individual Income Tax Return.

References:

• Publication 517, Social Security and Other Information for the Members of the Clergy and Religious Workers
• Tax Topic 417, Earnings for clergy

Yes, housing allowances for ministers are subject to social security and Medicare taxes, under the Self-Employment Contributions Act. However, if you are a duly ordained, commissioned, or licensed minister of a church, a member of a religious order not under a vow of poverty, or a Christian Science practitioner who elected and was approved for exemption from social security coverage and self-employment tax, your housing allowance would not be subject to social security or Medicare taxes. Refer to Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, for additional information.

References:

• Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers
• Form 4361 (PDF), Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners