Monday, January 7, 2019

Hey Fletch … I heard you say at the Smart Money workshop, “If a pastor has low housing costs, it can actually hurt them financially.” My question is how? Isn’t it beneficial to have a portion of your income excluded from being taxed, even if it’s a small amount? I make about $56,000 and my housing allowance is about $13,000.

DRF—The difference comes when comparing a salary of a pastor to a non-pastor. The non-pastor who earns $56,000 has the employer pay 7.65% in FICA and the other 7.65% is deducted from their paycheck.

The pastor pays all the SECA of 15.3%.

That SECA difference is offset by the minister’s housing allowance. Often it takes about $60,000 of combined household income (and housing expenses) to equal out. The 25 year old pastor who lives at home, or in a shared apartment, making $40,000 in this sense is “losing money.”  

Here are some examples based on the 2017 tax year (soon I will create sample numbers for 2018):

Non-pastors that earn $50,000 a year—the church contributes the FICA amount of 7.65% of wages, which is $3,825. The employee contributes another $3,825. A non-pastor takes home $46,175.

Pastors earning $50,000—pastors in Social Security contribute 15.3% in SECA, which is $7,650. The pastor has an annual take-home pay of $42,350. The final tax bill will be offset by the ministerial housing allowance.

Remember to include in your housing allowance:

  • Rent or mortgage
  • Furnishings
  • Taxes
  • Utilities—electricity, gas, water, sewer
  • Renovations
  • Community association fees
  • And more that we talked about and are in the slides from the workshop