This is always a difficult thing to explain…and keep straight after it’s been explained. The Designated Housing Exclusion is basically a tax loophole. It allows pastors to reduce their tax bill by having a part of their salary designated for housing. It doesn’t cost the church anything. If it’s not done, it will cost your pastor to pay more than their “fair share” of taxes.
The Cash Housing Allowance is an extra amount paid to the pastor in lieu of a parsonage. When a parsonage isn’t provided, the church can provide money over and above the salary to help the pastor cover their housing costs. This does cost the church something. If the Cash Housing Allowance will not cover all the pastor’s housing costs, the pastor can have more designated from their salary to cover the extra costs.
“Exclusion is what you claim. Allowance is what you get.”Roy Caudill
Check out the video below:
- Clergy Tax Webinar: https://www.youtube.com/watch?v=5HIzf4Tgh84
- Housing Allowance Q&A: https://www.dakotasumc.org/media/files/old/00/Conference/Finance/Legal/Housing_Allowance_QA.pdf
- Housing Allowance Worksheet: https://www.dakotasumc.org/media/library/fluid-mod-page/137/documents/Housing_Allowance_Worksheet.pdf