Parsonage Allowance

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Parsonage Allowance

The housing allowance for a priest, minister or other clergy member (or the equivalent). The parsonage allowance is tax deductible for purposes of calculating the income tax owed, but not for calculating the self-employment tax. See also: Form 4361.
References in periodicals archive ?
Qualified Home Expenses Versus Excess Parsonage Allowances
The treatment of excess parsonage allowances is a common source of confusion: if a parsonage allowance exceeds the amount spent on qualified home expenses, a minister must report the excess as taxable income.
In addition, the amount of parsonage allowances paid should be kept consistent by a religious organization, especially in situations where the pastor is in control of setting the allowance.
This ruling could represent a windfall for pastors who find that they might have excess parsonage allowances.
Retired ministers need not include a parsonage allowance or the rental value of a provided parsonage in the computation of net self-employment earnings, even if they have not opted out of the Social Security system; moreover, they do not need to include any retirement benefits received from a church plan subsequent to retirement (IRC section 1402[a][8]).
The Clergy Housing Allowance Clarification Act applies only to housing allowances and parsonage allowances for federal income tax purposes.
Deductions for a home office rarely are allowed since churches and temples usually provide an office, and parsonage allowances already are excluded from income.
In addition Congress in 1996 excluded the parsonage allowance from self-employment taxes after the cleric retires, making denominational plans especially attractive.
Retirement benefits and parsonage allowances paid to ministers after retirement are no longer subject to self-employment tax, retroactive to 1994.
107-1(b) requires parsonage allowances to be designated in advance by the employing church or other qualified organization.
83-3 precluded deductions for home mortgage interest and real estate taxes allocable to parsonage allowances excluded from gross income.
Today, the concept of parsonage includes parsonage allowances, rental allowances, and housing allowances.