Many ministers are surprised to learn they may qualify for one of the most valuable tax benefits available to clergy both during active ministry and throughout retirement. Because we receive so many questions about the minister’s housing allowance, a brief overview may be helpful.

In simple terms, any portion of a credentialed minister’s compensation that is properly designated as a housing allowance, within IRS guidelines, is exempt from federal income tax and, in most cases, state income tax as well.

What makes this benefit especially significant is that it can continue into retirement. The IRS allows funds earned through ministerial service and contributed to a 403(b)(9) Church Retirement Plan, such as Servant Solutions, to remain eligible for housing allowance designation for the rest of your life.

For many retired ministers, this benefit can help stretch retirement income further and provide greater financial flexibility in the years ahead.

Eligible Housing Expenses

During both active ministry and retirement, the following expenses may generally be included when determining your housing allowance:

Rent or mortgage payments
Down payment on a home
Real estate taxes and homeowners or rental insurance
Utilities such as electricity, gas, water, and trash removal
Furniture, appliances, and home furnishings
Repairs, maintenance, or home improvements
Homeowners association fees and related housing costs

The amount you determine as housing allowance is then presented to your church or employer for official designation and documentation in accordance with IRS Publication 517 guidelines.

An Important Tax Detail

While housing allowance is excluded from federal income tax, it must still be included when calculating self-employment tax (SECA) on Schedule SE. This is because the IRS treats ministers as self-employed for Social Security and Medicare purposes, even when they receive a W-2 as church employees.

Be Careful Before Consolidating Retirement Accounts

Another common question involves “consolidating” retirement savings. You may have been encouraged to roll funds out of your current retirement plan into another investment vehicle. While this can sound appealing, it is important to proceed carefully.

Once funds are rolled out of a 403(b)(9) Church Retirement Plan, such as Servant Solutions, they permanently lose their eligibility to be withdrawn as tax-free housing allowance in the future. In addition, those funds cannot later be returned to the plan to restore the benefit.

This is an important detail many ministers do not realize until it is too late.

A Better Consolidation Option

If consolidation is your goal, there may be a better alternative. In many cases, you can roll other eligible retirement accounts, such as a pre-tax IRA, 401(k), 403(b), or even a Roth 403(b), into your Servant Solutions account while preserving the unique housing allowance benefit.

Learn More

Understanding the minister’s housing allowance can make a meaningful difference in your long-term financial picture. We encourage you to visit our website for additional resources, explanations, links, and worksheets to help guide you through the annual determination and designation process. https://www.servantsolutions.org/the-ministers-housing-allowance

If you have questions, our team is always glad to help.

Rev. David Boots

Director of Member Services - Western Region

Rev. David Boots serves as the Servant Solutions Director of Member Relations for the Western Region. He brings his experience and knowledge of 35 years of vocational church ministry, having served three large congregations of the Church of God full time as Executive Pastor, overseeing operations, administration and finance. He has also served those congregations at times as Worship Pastor.