Designating a housing allowance is essential for churches and religious organizations, ensuring ministers benefit from this exceptional provision in the U.S. tax code. Proper designation empowers ministers and ensures that the church complies with IRS regulations. Let’s look at how to designate ministers’ housing allowance properly.
Key Dates and Processes
- Annual Designation: You must designate a housing allowance in advance. Typically, this is done at the end of the previous year, but it can be done at any time.
- Updating Designation: If you need to update your designation in the middle of a year, you can, but there is a catch. The revised amount is only valid from the date of the update forward.
- Board or Committee Meeting: The church’s governing body, such as the board of trustees or finance committee, must make the designation. An official meeting should be scheduled for this purpose, and documentation of the allowance is required.
- Documentation: The decision made during the meeting must be recorded in the official minutes or a resolution form. This ensures there’s tangible proof of the designated amount.
- Automatic Renewal: You may have the housing allowance carried over every year as long as it is documented in the resolution that the allowance is for all years of service.
To simplify life, we have prepared a template you can cut and paste for your board to compete.
Resolution for Minister’s Housing Allowance
Date: [Meeting Date]
We, the [governing body, e.g., “Board of Trustees”] of [Church/Organization Name], during our scheduled meeting on [Meeting Date], hereby designate $[Amount] as the housing allowance for [Minister’s Full Name] for the Year [Year], as provided under Section 107 of the Internal Revenue Code.
This designation is made in recognition of the services rendered by [Minister’s Full Name] to [Church/Organization Name] and is effective from [Effective Start Date] to [Effective End Date].
Unless updated by a new resolution, this housing allowance amount will continue annually.
[Name of Board Chair or Authorized Person]
[Title, e.g., “Board Chair”]
[Date of Signature]
Pitfalls to Avoid
- Lack of Advance Designation: One of the most common pitfalls is failing to designate the housing allowance in advance. The IRS does not accept retroactive designations. Be sure to designate your housing allowance.
- Inadequate Documentation: Ensure the designation is documented correctly and all records are retained. In case of an audit or inquiry, having this documentation is crucial.
- Over-Estimation: While it’s tempting to designate a considerable amount to cover all potential housing expenses, remember that the allowance can only be the lesser of actual expenses, designated allowance, or the fair rental value (FRV) of the home. Designate wisely to avoid complications. However, it is safer to over-estimate than under-estimate.
- Ignoring Changes: Life can bring unexpected changes—like a move or significant home repair. Revisiting the designation is essential if the minister’s housing circumstances significantly change during the year.
- Overlooking the IRS Guidelines: Stay updated with the latest IRS guidelines and publications. IRS Publication 517 provides specific details on the housing allowance and can be a valuable resource.
In conclusion, the proper designation of the Minister’s Housing Allowance is both a responsibility and a tool for churches and religious organizations. It offers ministers a significant financial benefit while requiring meticulous attention to detail and adherence to IRS regulations. As with all financial matters, seeking guidance from a professional familiar with clergy tax law is always a good practice when in doubt. Join us in our next post as we explore the intricacies of the Minister’s Housing Allowance. Your financial empowerment journey continues with us!
For informational purposes only. It is important to consult a professional before implementing any strategies or ideas.