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• All income received from performing ministerial services is subject to self- employment tax for social security tax purposes, but they also may be an employee for income tax or retirement plan purposes in performing those same services. For income tax or retirement plan purposes, the income earned as an employee will be considered wages. • Income of a minister/clergy member can either be budgeted as self-employment income or as taxable income for the year in which eligibility is being determined. Rental allowances If a salary is received as an amount officially designated as a rental allowance (including an amount to pay utility costs), this allowance can be excluded from the gross income if: • The amount is used to provide or rent a home, and • The amount is not more than reasonable pay for the services.

The amount excluded cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. Designation requirement The church or organization that employs the minister/clergy member must officially designate the payment as a housing allowance before the payment is received. They must designate a definite amount. They cannot determine the amount of the housing allowance at a later date. If the church or organization does not officially designate a definite amount as a housing allowance, then the entire salary must be included in the income. If the minister/clergy member is employed and paid by a local congregation, a resolution by a national church agency of the denomination does not effectively designate a housing allowance for them. The local congregation must officially designate the part of the salary that is a housing allowance. However, a resolution of a national church agency can designate the housing allowance if they are directly employed by the national agency. An official designation of an amount as a housing or rental allowance may be shown in an employment contract, in the minutes of a church or qualified organization, in a budget, or any official action taken in advance of payment of the allowance. A designation is sufficient if it permits a payment to be identified as a payment of a rental or housing allowance as distinguished from salary or other remuneration. Informal discussions do not amount to an official designation. However, the facts and circumstances of a designation may demonstrate that the designation was official.53 • When a salary is received without a housing allowance If the church or organization does not officially designate a definite amount as a housing allowance, then the total salary must be included in the income.