Here's a simple explanation of a minister's housing allowance:

What Is It?

If you're a minister, your church can give you money to help pay for your housing — like rent or a mortgage. This is called a housing allowance.

The big benefit:
You don’t have to pay federal income tax on that housing money — as long as you use it for real housing costs.  that’s more money in your pocket!

Who Can Use It?

You must be a licensed, ordained, or commissioned minister, doing things like preaching, leading services, or performing weddings and funerals.  A paid staff member without credentials would not be eligible.

What Can the Money Be Used For?

You can spend it on:

Rent or mortgage           Utilities (electric, water, gas)

Property taxes                Repairs and upkeep

Furniture                          Home insurance

How Does It Work?

Your church must write down the housing allowance amount before they pay it.  Best practice is to establish reasonable allowance in December before start of New Year.  The amount can be adjusted later if needed.

You must actually spend it on housing.

You can only exclude from taxes the least of these three:

What the church said was your housing allowance

What you actually spent on housing

The fair rental value of your home (including utilities and furniture)

Example:

Let’s say:

Your church gives you $20,000 for housing.

You spend $18,000 on housing.

The rental value of your home is $19,000.

👉 You can take $18,000 off your income for tax purposes.

One More Thing:

You still have to pay self-employment tax (like Social Security) on your housing allowance — unless you’ve opted out of it for religious reasons.