Does Clergy Parsonage – Housing Allowance count for
Covered CA & Medi-Cal MAGI Modified Adjusted Gross Income?
IRS Tax Topic 417
Earnings for Clergy
A minister who receives a housing allowance may exclude the allowance from gross income to the extent it is used to pay expenses in providing a home. Generally, those expenses include rent, mortgage interest, utilities, repairs, and other expenses directly relating to providing a home. The amount excluded cannot be more than the reasonable compensation for the minister’s services.
If you own your home, you may still claim deductions for mortgage interest and real property taxes. If your housing allowance exceeds the lesser of your reasonable compensation, the fair rental value of the home, or your actual expenses, you must include the amount of the excess in income.
The minister’s employing organization must officially designate the allowance as a housing allowance before paying it to the minister.
Thus, parsonage does NOT appear (check with your own CPA or Tax Attorney) to count toward MAGI, subsidies – advance premium tax or Medi-Cal Qualification.
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Hi Steve,
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I have a question related to MAGI for clergy.
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I left a normal church position to start a new church and my salary was significantly reduced. We qualify for Medicaid assistance in Pennsylvania but only if our housing allowance is not part of our MAGI as you mentioned in your article. Our application in the marketplace was sent over to our county assistance office and that’s where the problem comes in.
The county claims that they have a policy that indicates that if the housing allowance is paid directly to me, then it counts as salary.
***The minister’s employing organization must officially designate the allowance as a housing allowance before paying it to the minister. (IRS.Gov/Topic 417)
I’m waiting for a call from a supervisor and I would like to have definitive information to show him that the MAGI for clergy does not include the housing allowance.
Do you know where to find that in the healthcare law?
***Here’s what I have. I’m concerned about if you are an employee or not. Here’s what I found. I suggest you contact competent tax counsel.
A licensed, commissioned, or ordained minister is generally the common law employee of the church, denomination, sect, or organization that employs him or her to provide ministerial services. However, there are some exceptions, such as traveling evangelists who are independent contractors (self-employed) under the common law.
A licensed, commissioned, or ordained minister may be able to exclude from income the fair rental value of a home (a parsonage) or a housing allowance provided as compensation for ministerial services performed as an employee. (IRS Publication 517 Page 9)
If you are a minister performing ministerial services, all of your earnings, including wages, offerings, and fees you receive for performing marriages, baptisms, funerals, etc., are subject to income tax, whether you earn the amount as an employee or self-employed person. However, how you treat expenses related to those earnings differs if you earn the income as an employee or as a self-employed person.
Facts and circumstances determine whether you are considered an employee or a self-employed person under common-law rules. Generally, you are an employee if the church or organization you perform services for has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. See Common Law Rules in Publication 15 A.
The minister’s employing organization must officially designate the allowance as a housing allowance before paying it to the minister. (IRS.Gov/Topic 417)
Thank you for your help!
Pastor Jason
Do you know anything about applying for Covered California and using the salary only portion of clergy compensation (excluding housing allowance) to qualify for financial assistance for health care?
I’m not sure of what you are asking. Anything that I don’t know, I can read up on.
What do you expect to show on line 7 adjusted gross income of your 2020 1040 form? MAGI Income.
Your question is really a tax question, not a Covered CA question. Covered CA prohibits agents from giving tax advice.
Covered CA subsidies go by line 7… Covered CA has no business in how your tax man got there!
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Hi Steve,
The county claims that they have a policy that indicates that if the housing allowance is paid directly to me, then it counts as salary.
Pastor Jason
….****We will look into this matter on a new webpage.