Minister's Housing Allowance: Don't waste your time on this

Minister's Housing Allowance (MHA) is a tremendous benefit, but are you wasting your time on this aspect of it? Watch this video for an idea on whether or not you should spend hours adding up every little item.
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*Disclaimer: All information contained in my videos are for general educational purposes only. These videos are not meant to be used as tax advice for any specific individual, business, or other entity. You should consult with a CPA or other professional before making any decision that impacts your tax and financial responsibilities. Additionally, I am not a Certified Financial Planner and I do not give investment advice. Any information contained in my videos related to budgeting, finances, or investments are solely my opinions and are not intended to influence specific decisions you may make as it relates to your finances.

[@Team8LA]

Thank you, but no Schedule C for Paster's income? Only Schedule SE?

[@IntentionalFinance101]

A pastor can have Schedule C, but not necessarily. Most pastors will get a W2 from their church. That would go to Schedule SE. If a pastor performs weddings or funerals or other services outside of the W2 income and is paid directly by the individuals then that would end up on schedule C. That is the most common scenario. There are others as well.

[@gsman1]

Love your video and the information is good, but I'm guessing most of the Ministers I know would always want to save an extra $50 on the tax return. If you are aware of what is included in the MHA, then the designation of the MHA prior to the beginning of the tax year, and the accumulation of the related expenses should be easy.

[@IntentionalFinance101]

Thanks for watching and the comments. Some would put in the time for the extra $50 and some wouldn't. The video is for either to know the benefit so they can decide for themselves. Also, they should be aware of whether that extra time is savings them any money at all.... many times it's saving them nothing and they're spending extra time gathering that information for nothing.

[@indo3052]

My buddy told me. When a church is tax exempt. The gov is paying for the pastors expenses. Car insurance, car payment, gas, etc. Hes telling me if the pastor files all those expenses, he gets 100% of it back when filing taxes. So hes basically telling me the gov is paying for his vehicle payment. This doesnt seem accurate to me.

[@IntentionalFinance101]

That does not seem accurate. There appears to be too much incorrect in what you've conveyed to really even address it adequately. A church pays no income tax (like a normal business would) because it is tax exempt. A pastor is typically a W2 employee for income tax purposes (and self employed for soc sec and medicare tax purposes). This means the pastor cannot deduct any of those items you mentioned on their personal tax return, typically. The church could reimburse them (just like a normal employer can reimburse business expenses) for mileage driven for business, but not a car payment, gas, nor insurance. A pastor gets some of their pay income tax free (minister's housing allowance). The government is paying for nothing (other than in the sense that by nonprofit being tax free and pastors getting some income tax free they "pay" for that in the form of less taxes collected). He either has a significant misunderstanding of what's going on (very common) or blowing smoke...

[@indo3052]

@@IntentionalFinance101 OK thank you for your response yeah I thought what he was telling me was way off he’s basically telling me that it’s not just tax exempt when you file your taxes the government actually pays for all your expenses. He’s basically telling me that a pastor that Has a tax exempt church he can write off all his expenses and instead of having a deduction in his taxes the government will actually pay back 100% of his expenses

[@Phaedrus-th7bi]

Ordained ministers are considered self-employed and so we must make quarterly payments (Vouchers) to the IRS. Use of our car for church-related activities gets reimbursed to us by the congregation at the year's IRS mileage rates. [It does NOT include normal travel to and from the church and our homes.] I believe this year it's somewhere around 68 cents / mile. The congregation DOES NOT pay my car insurance, repair, or auto loan. Believe me, pastors are NOT making money on the 68 cents / mile [or whatever it is this year]. It covers mileage in relation to home and hospital visits; commuting to religious seminars and conferences; and a few other minor drives, like funerals and weddings. Your buddy has no idea what he is talking about.

[@rickyingram4372]

What do I put down for salary when trying to get scholarship if I make 40k but my housing is lets say 10? is 40k or 30k?

[@IntentionalFinance101]

Hey Ricky, I'm not sure I understand the question fully... If you're asking about what to put down on an application for a scholarship then that will depend on the application and what they are looking for. The FAFSA has a spot specifically to list housing allowance. I would assume they want to know your full income... so if there isn't a separate question where you would put the housing allowance, then I would likely include it wherever you're listing your income on the application.

[@rickyingram4372]

@@IntentionalFinance101 ok sorry this will probably help. I need to get my kids health insurance, in order to get qualified I need to meet a certain income. My question is do I write down what is my salary before the housing income or my salary with my housing income? if that make any sense.

[@IntentionalFinance101]

@@rickyingram4372 That makes sense. I can't really help though... you'll need to find out from the company you're working with if they want that included or not. My guess is that it should be included, but I don't know. It's not really a tax question, the answer could be specific to the application/company through which you're working.

[@jbaquedano]

Can the housing allowance be used to pay for the mortgage or is just for rental?

[@IntentionalFinance101]

Yes. Mortgage too. Any expense to maintain the home.

[@Worship12321]

Is the self employment tax on only the housing allowance or wages also?

[@IntentionalFinance101]

Evangelina, se tax is on the base pay (box 1 of the W2) and the housing allowance (typically in box 14 of the w2). You pay income tax on just the base pay, but se tax on both (unless form 4361 has been filed to opt of SE tax or a vow of poverty has been taken).

[@ryanw1223]

@@IntentionalFinance101 hi I have an approved 4361 is there a change I can make on my w9 to receive more take home pay vs the larger tax returns I get every year due to the refunded SE? I get the social security taken out of my pay but I’d prefer to keep this since I’m exempt. Sorry if I don’t know how to word this question correctly.

[@IntentionalFinance101]

@@ryanw1223 W9 is for a 1099 contractor... a W4 is for a W2 employee. I will assume your a W2 clergy employee... If they are withholding FICA taxes (and boxes 3,4,5 and 6 have amounts in them on the W2) then that is incorrect and needs to stop. If they are simply withholding enough federal income taxes (in box 2 of the W2) to cover SE taxes then you can work with them to lower the withholding amount so you can have larger paychecks and smaller tax refunds.

[@Ambientes]

Audio quality is poor

[@IntentionalFinance101]

yes it is. thanks for the feedback. I've started using a mic on my newer videos to correct this echo problem.

[@crestonhardcastle7631]

Why should pastors get a break

[@IntentionalFinance101]

Plenty of people benefit from tax breaks. The housing allowance dates back to when pastors stayed in homes owned by the church. Since the pastor was given free housing, that is technically taxable income for the fair rental value, but because it was housing and not cash it would have been hard to charge them tax on it since they wouldn't have had the cash to pay the tax. Then when churches started designating part of the pay for them to go use for housing they carried that benefit over. I think a good portion of the country's sentiment is changing to where this may not be what they desire, but congress is always slow to take away a tax benefit and increase a tax on those who don't make a lot of money. There are a handful of famous pastors who make a lot of money, but the vast majority of churches are less than 1,000 people and the vast majority of pastors are paid moderately.

[@mystewart]

How would you calculate a housing allowance for a parsonage that has no mortgage or rent payments (church fully owns the home)? What all should be included in the allowance? Church pays all utilities as well as repairs, upgrades (installing a/c, updating cabinetry, painting, replacing old carpet), etc. Thanks!

[@IntentionalFinance101]

@@mystewart If the church pays for everything, then none of the pastor's salary would be designated as MHA. The rental value of the home plus the utilities, repairs, etc. would be the housing allowance. Since housing allowance is subject to SECA taxes, that amount needs to be determined each year so the pastor can add that to his other income for self employment taxes. For example, if the pastor is paid $40,000 that is his W2 income for box 1. If the rental value plus other costs add up to $24,000 then $64,000 would be the correct amount for the SE Form and for paying SECA taxes.