What is Parsonage Allowance? A Comprehensive Legal Overview
Definition & Meaning
The parsonage allowance is a specific type of income that is excluded from gross income for federal tax purposes. Under section 107 of the Internal Revenue Code, this allowance is designed to help clergy cover housing expenses. The church or employer organization designates this allowance to assist with the costs associated with providing and maintaining a home for clergy members. If a clergy person's housing costs exceed the designated allowance, the church conference may approve additional housing expenses as part of their salary, allowing for a more comprehensive coverage of housing-related costs.
Legal Use & context
The parsonage allowance is primarily used in the context of tax law, specifically relating to clergy and their housing benefits. It is relevant in areas such as tax compliance and financial planning for religious leaders. Clergy members may need to complete specific forms to claim this allowance, and using legal templates from US Legal Forms can simplify the process of managing these tax-related issues.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A pastor receives a parsonage allowance of $30,000 per year. If their total housing expenses, including mortgage, taxes, and insurance, amount to $40,000, the church may approve an additional $10,000 as part of their salary to cover the excess costs.
Example 2: A clergy member living in a rented home receives a parsonage allowance of $25,000. If their rent and related housing costs total $20,000, they can exclude the full allowance from their taxable income. (hypothetical example)
Relevant laws & statutes
Section 107 of the Internal Revenue Code is the primary statute governing the parsonage allowance. It outlines the criteria for excluding housing allowances from gross income for tax purposes.