How are housing allowances treated for income tax purposes?
• Housing allowances are excluded from income for federal income tax purposes. However, if the amount of allowance actually received exceeds the allowable expenses, the excess must be reported as ordinary income. • Housing allowances are subject to social security and medi-care taxes, whether the recipient is considered an employee or considered as self-employed, unless the proper elections were timely made to exclude the minister’s income from these taxes. What are the tax strategies normally recommended? • Maximize your housing allowance, even if it requires reallocating your total income from the congregation. This has the result of reducing income taxes by reducing taxable income. • In some cases, minister may wish to consider increasing their contributions to the organization, so that the organization will have the funds to increase the housing allowance. This has the result of increasing itemized deductions, but would not ordinarily increase taxable income. This particular strate
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