You Make the Call - June 18, 2026

Question: Alex Rivera is an ordained minister employed by Grace Community Church. Before 2026 began, the church board approved a written resolution designating $24,000 of Alex's 2026 compensation as a housing allowance. During 2026, the church paid Alex a $72,000 salary plus the $24,000 designated housing allowance. Alex paid $18,800 for rent and $2,800 for utilities, totaling $21,600 of actual housing expenses. The home's fair rental value (FRV), including furnishings and utilities, was $23,500 for the year. The church did not pay Alex more than reasonable compensation for ministerial services. Alex has no unreimbursed ministerial business expenses and does not have an approved Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners. What is the correct federal tax treatment of Alex's $24,000 housing allowance? 

Answer: Alex may exclude $21,600 of the housing allowance from gross income for federal income tax purposes and must include the remaining $2,400 as taxable income. Alex must also include the full $24,000 housing allowance when figuring net earnings from self-employment on Schedule SE (Form 1040), Self-Employment Tax. 

Section 107 allows ministers to exclude a rental allowance paid as compensation to the extent they use it to rent or provide a home and only to the extent it does not exceed the home's FRV, including furnishings, appurtenances and utilities. IRS guidance also requires the employing organization to officially designate the housing allowance before paying it. 

Alex's excludable amount is limited to the smallest of: 

• $24,000 designated housing allowance 
• $21,600 actually used to provide the home 
• $23,500 FRV of the home, including furnishings and utilities 

The smallest amount is $21,600, so Alex excludes $21,600 from gross income and reports $2,400 as excess housing allowance on Form 1040, U.S. Individual Income Tax Return. Because Alex does not have an approved Form 4361, Alex's ministerial earnings remain subject to self-employment (SE) tax. Section 1402(a)(8) requires ministers to compute net earnings from self-employment without applying the §107 housing allowance exclusion. Therefore, Alex includes the $24,000 housing allowance, along with ministerial salary and other ministerial earnings, when completing Schedule SE.