In other words, a housing allowance is money that is not reported as income. A housing allowance is never deducted because it is never reported as income in the first place. A housing allowance is free from income taxes but not from SECA taxes. Ministers who live in a parsonage can have a housing allowance if they pay for utilities, furnishings, or other items required to maintain a home. Churches should designate a housing allowance so ministers can exclude from income the amounts required to pay for these expenses.
Bivocational ministers can have a housing allowance, but only from their ministerial income.
Secular employers cannot designate tax-free housing allowances for clergy. Remember, however, that there are limits on a tax-free housing allowance. For housing allowance purposes, ministers can only include expenses for a primary residence. The housing allowance should not be reported on a minister's Form W-2. Churches should designate a housing allowance in writing before the beginning of a calendar year.