Church and Housing Allowance

[S T]

Hoping some of our Posters for Churches can respond ---

I recently acquired a Church Account and the question has been raised

When setting the Annual Budgets - should the Sr Pastors Housing Allowance be greater than the Salary??

This particular instance is approximately $ 35,000 in Salary, plus Benefit Package (Retirement, Insurance, HSA) and $ 80,000 in Housing Allowance.

Question was is the Housing Allowance too high?

Is there a resource to review to set the guidelines for compensation vs housing allowance?

Thanks

Sandy

[JohnH]

There isn't a guideline regarding the ratio of salary to H&U allowance. The minister can request any amount he/she can justify. The limitations only apply when the return is prepared. Regardless of the amount of the H&U allowance, the minister can only deduct the lower of: 1) The amount designated; 2) the amount actually spent; or 3) the fair rental value of the parsonage (fully furnished and with utilities paid).

I think it's important that the H&U allowance always be set very high, because it's important not to leave a tax benefit unused. One never knows when a major repair may be required to the home, for example. As long as the church does a proper designation, it has no further responsibilty in the matter. Over the years I've seen many church members ask endless questions about this benefit, but I came to the conclusion that most of them are motivated more by jealousy over the benefit rather than any genuine concern about the tax laws. Hopefully that isn;t what you are dealing with in thi situatin=on.

[S T]

Thanks John H,

So it would be the Board determination, probably request for $$ amount submitted by the Sr Pastor for the allowance, it is a tax allowance the Sr Pastor will use on their own Personal tax return, possibly as a tax benefit (that is the Pastor's own personal reporting on 1040) so Church Board decisions for setting this limit would be okay. I believe that is one of the concerns of the Board - but then they don't have to prepare the Pastor's 1040 return, correct?

Thanks for the note on the Board and possible jealousy issue, this question for this particular Church client was not motivated by that as far as I can determine The post I stated for $ 80K on Housing Allowance has been in place for a while, just that a question arose whether or not that it could be considered excessive in relationship to the Compensation package not meeting some type of Published or recommended guidelines. New Board Members and New Budget

Thanks,

Sandy

[veritas]

I believe

The board action is merely a rubber stamp for the pastor's request.

I wouldn't call the members questioning jealousy, probably incredulity. If the general congregation knew about this giant tax loop hole and the public at large it would be another black eye for believers.

[JohnH]

A black eye for believers? I think not if they're willing to honestly consider the implications. Although there are pastors who are compensated well, the vast majority are embarrassingly underpaid. The small tax savings they receive as a result of the H&U allowance nowhere near makes up for the stingy behavior of their members. But I see this as a spiritual problem more so than a financial one, both within and outside the church.

[JohnH]

Thanks John H,

So it would be the Board determination, probably request for $$ amount submitted by the Sr Pastor for the allowance, it is a tax allowance the Sr Pastor will use on their own Personal tax return, possibly as a tax benefit (that is the Pastor's own personal reporting on 1040) so Church Board decisions for setting this limit would be okay. I believe that is one of the concerns of the Board - but then they don't have to prepare the Pastor's 1040 return, correct?

Thanks for the note on the Board and possible jealousy issue, this question for this particular Church client was not motivated by that as far as I can determine The post I stated for $ 80K on Housing Allowance has been in place for a while, just that a question arose whether or not that it could be considered excessive in relationship to the Compensation package not meeting some type of Published or recommended guidelines. New Board Members and New Budget

Thanks,

Sandy

It often arises with new board members. I probably shouldn't have made reference to the jealousy matter, but I've just seen so much of it over the years that I've become jaded. The minister should submit a written request for the H&U allowance, which the board would include in their minutes when they approve the budget. There are many samples or templates available on the internet. I think it's important that the designation have some wording to the effect that it remains in effect until changed. That way there's some protection if a future board overlooks it.

Once that is done, the church is really out of the matter, aside from paying the allowance and salary. It is up to the minister to keep track of actual expenses, report correctly on his/her tax return, and to justify the FRV if the return is ever audited.

Maybe Mike Maldody or others with Clergy experience will offer some more guidance if they see this thread.

[veritas]

I agree

A black eye for believers? I think not if they're willing to honestly consider the implications. Although there are pastors who are compensated well, the vast majority are embarrassingly underpaid. The small tax savings they receive as a result of the H&U allowance nowhere near makes up for the stingy behavior of their members. But I see this as a spiritual problem more so than a financial one, both within and outside the church.

Many if not most pastors are under compensated. The thing is do we need to use the tax code to rectify the negligence of those who are stingy? And do you want to subsidize those that are quite well off? I have seen the earnings and net worths for some clergy and they are not the middle class by any means. I remember sitting listening to a sermon about how the pastor would give not 10% but 15%. And I sit there thinking if I could take 50k off my tax return I could give 15% too.

[S T]

I appreciate all thoughts, and not taking on the little side notes John H and Veritas - not going to get into that.

New venture for me, so looking for some experience and wisdom, relating to Churches and Clergy, as I know we have some very learned and experienced people on this board for this area including both of you.

It was a question asked as I stated since I am now the NEW Church Bookkeeper/Accountant/Payroll whatever----

Also, the Sr Pastor has asked if I could either review his last couple of years tax returns, that his wife has prepared and whether or not I could also move forward on preparing some future years - Okay - more education and training for me - Never prepared one for a Clergy member.

Church return - exempt - just making sure all is in line with guidelines I have read - a Rental portion reported on 990T - I think I am good to go.

The Church just had what seems to have been a "lazy" person in the past for payroll and bookkeeping/accounting and some Tax Reporting, so some issues there that I am trying to clean up - thereby why the post. And the NEW Board members are aware that maybe certain items need some addressing

Guess you could call this "Everyone get their Ducks in a Row"

Hoping maybe as John H posts, that Malody or other experienced Church/Clergy posters will visit and respond.

Thanks all

Sandy

[MAMalody]

You have received some pretty good advice so far. One may want to add up the entire compensation package. If it is $150,000 or more, it may be considered unreasonable compensation. Just a thought.

[S T]

Thanks for the post M

Compensation is $ 30,500 ( 2012 added bonus of $ 6,500)
Housing is $ 80,000
Retirement is $ 30,000
Health Ins variable is $ 15,000 (you know those rate hikes each year)
HSA is $ 3,000

Church pays 100% on the retirement, health insurance and HSA for the SR Pastor

So yes - over $ 150,000 - approx $ 158,500 as it is today - no Bonus' included and usually there is a bonus if enough received in giving donations.

For what it is worth - this particular scenario - the Sr Pastor has been at the Church for approx 36 years and donates back to the church $600 per wk (31,200 annual)


Suggestions-- if any would be welcomed???

Thanks

Sandy

[MAMalody]

If this were my client, and if a denominational church, I would try to ascertain if this type of compensation package is common for the size of church. If not size, see the demongraphics of his congregation...the average compensation of his congregation or community may be in the same vein as his compensation package. This package does not have to be a problem and may never be, however.....

[Black Bart]

Say, MM

If this were my client, and if a denominational church, I would try to ascertain if this type of compensation package is common for the size of church. If not size, see the demongraphics[/b] of his congregation...the average compensation of his congregation or community may be in the same vein as his compensation package. This package does not have to be a problem and may never be, however.....

You aren't (ha-ha) casting aspersions on the makeup of his congregation, are you?

P.S. Oh well, I thought it was funny.

[MAMalody]

Of course not!

[S T]

Thanks M,

Gives me some good information to pass on -

[Burke]

----

Also, the Sr Pastor has asked if I could either review his last couple of years tax returns, that his wife has prepared and whether or not I could also move forward on preparing some future years ....Sandy

His wife did them? That's scary. You may find that once you review the past years' returns that the spouse has been taking the $80K as allowable HSA. That's awfully high. See John H.'s post. It cannot exceed FRV of the parsonage + utilities. There are worksheets in most software that will compare the three amts (designated, actual and FRV) and calculate addl taxable income on Line 7 if necessary.