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
