Q: The Church & Clergy Tax Guide says that a pastoral housing allowance is not subject to Social Security tax if the minister receiving it is retired. I am retired, but I am paid a housing allowance while serving part-time as an associate pastor in my church. Do I qualify for not paying Social Security taxes?
When Is a Housing Allowance Considered “Earned” Income?
Social Security taxes apply to earned income, regardless of the age of the worker. In your case, since you are currently working to earn the housing allowance by serving as an associate pastor, the housing allowance is considered earned income and is subject to Social Security (self-employment) taxes.
When Is a Housing Allowance Not Considered “Earned” Income?
If a minister is performing no services—meaning zero services—and receives a payment from a retirement plan operated by a church, amounts designated as a housing allowance are not considered “earned” income. In these situations, the housing allowance is not subject to Social Security taxes.
Key Takeaways
- Housing allowances are subject to Social Security taxes if the minister is actively performing services.
- Retired ministers receiving a housing allowance without performing any services are not subject to Social Security taxes.
- The distinction depends on whether the income is earned through current ministerial services.
FAQs About Housing Allowance and Earned Income
What is considered “earned” income?
Earned income includes wages or other compensation received in exchange for actively performed work or services.
Are housing allowances for retired ministers subject to Social Security taxes?
No, if the minister is fully retired and performing no services, housing allowances from a retirement plan are not subject to Social Security taxes.
Does part-time work affect the tax status of a housing allowance?
Yes, if a minister is working part-time and receiving a housing allowance, it is considered earned income and is subject to Social Security taxes.
How does the IRS define “no services” for housing allowances?
The IRS defines “no services” as the complete absence of any work or ministerial duties performed by the minister receiving the housing allowance.
Conclusion
The tax status of a housing allowance depends on whether the minister is actively performing services. Retired ministers who perform no services are exempt from Social Security taxes on housing allowances, while those working—even part-time—must pay Social Security taxes on the allowance. For detailed guidance, consult resources like the Church & Clergy Tax Guide.
