How is salary structured for ministers?

As explained on our Housing Allowance for Ministers page, the Housing Allowance enables ordained and/or fellowshipped ministers to exclude a portion of their pay from income taxes. The minister determines the amount of their eligible housing-related expenses, and the housing allowance is designated (in advance) by the governing board.

When searching for a minister, congregations will make an offer of Salary that is inclusive of Housing. Since a Minister's Salary includes Housing, it is comparable to Salary for non-ministerial employees. The difference is in tax treatment. While Salary is taxable income, the Housing portion is not for Federal, and most state, income tax purposes; you should confirm that is true in your state. Although Housing isn't taxable for income tax purposes, a Minister's full Salary, inclusive of housing, is subject to Self-Employment (SECA) tax. That means the minister pays 15.3%* of the total for Social Security plus Medicare. (For other employees, the employee pays 7.65% as a payroll deduction, and the church pays 7.65%.) See Ministerial Compensation 101 to learn about the minister's dual tax status and the payment in lieu of FICA (or self-employment tax offset), which compensates the minister for this higher rate of Social Security/Medicare taxation relative to other staff.

*The 15.3% is adjusted for salaries over a certain amount ($160,200 in 2023).

What if we own a parsonage?

If you own a parsonage, you have a few options for Salary inclusive of Housing, depending upon if the minister will live in the parsonage full-time, part-time, or not at all.

If the minister will live in the parsonage

You can provide the minister with the home owned and maintained by the church, plus a Parsonage Allowance for related housing expenses. If you do that, you will still make an offer of Salary inclusive of Housing, but the Housing portion has two components:

1. The fair rental value of the parsonage, including furnishings and utilities, plus taxes.

2. A parsonage allowance to cover any allowable parsonage-related expenses not paid directly by the congregation. (The congregation should pay for utilities, as well as most maintenance and repairs, directly.) A Parsonage Allowance must be designated in advance, the same as a regular Housing Allowance.

If the minister will not live in the parsonage

You will make an offer of a total amount of money for Salary, inclusive of Housing. When you call or hire your minister, the total will be divided based on their actual eligible housing-related expenses, which will be designated in advance as a Housing Allowance. You will still pay the same total to the minister. The minister will purchase or rent a home and will use the Housing Allowance for that purpose.

The Housing Allowance is often designated for a specific timeframe, typically one year. Alternatively, you can use "evergreen" language, which keeps an annual amount in place until designated otherwise by the Board. Because the Housing Allowance can only be used prospectively, this may be a safer approach as it ensures that the minister will never find themselves without a designated Housing Allowance. However, since housing expenses do often change from one year to the next, we strongly recommend reviewing the designation once a year and adjusting as necessary. Refer to our Housing Allowance document for guidance. It is up to the minister to justify the amount if there is a tax audit.

If the minister will occasionally stay in the parsonage

This is a more unique situation sometimes encountered by congregations hiring a minister (usually part-time) who lives out of town and needs a place to stay when physically at the church. Keep in mind that ministers can only claim one residence for the housing allowance. In most cases, a minister claims their permanent residence for the housing allowance and the nights spent in the parsonage would constitute a taxable benefit that must be reported as imputed income. It is possible, though unlikely, in this situation to declare the parsonage as the minister’s home but we advise doing so with careful consideration and in consultation with a tax professional as there are tax implications beyond our expertise.

What else do we need to know?

A real estate professional can determine the fair rental value (FRV) before you make your compensation offer. The FRV should be reviewed regularly. Note that unless a corresponding adjustment to the "salary" component of Salary + Housing is made, an increase in the FRV will decrease the salary portion. Alternatively, you can increase the Salary + Housing total to keep the cash salary constant.

Just as with a Housing Allowance for a purchase or rental, the total Housing portion of compensation is tax-free to the minister for income tax purposes, but the total of Salary inclusive of Housing is subject to SECA tax. The church needs to budget for the salary plus utilities and maintenance of the home and the Parsonage Allowance.

Note that the congregation can offer a Housing Allowance on either a property purchased or rented by the minister or housing supplied by the congregation (a parsonage), but not both.

Under either scenario, the Salary inclusive of Housing total is the basis for salary-based benefit calculations such as UU Retirement Plan contributions, UUA Life and Long-Term Disability insurance, and professional expenses. This means that for benefits purposes, you do not need to be concerned with how much of the total salary is designated as housing allowance.

If you own a parsonage, you may want to consider the financial effect of the minister living there versus finding their own housing.

If the minister lives in the parsonage, your costs will include:

• Salary

• Utilities and maintenance

• The parsonage allowance

If the finds their own housing, your costs will include:

• Salary, inclusive of Housing

• Utilities and maintenance for the parsonage

• Offset for anticipated rental income from the parsonage

• If the parsonage is rented, be sure to check on and factor in any taxable unrelated business income and/or loss of real estate tax exemption.

What about giving the minister the choice?

Many ministers will want to have the option of finding their own housing, even if you make a parsonage available. Providing both alternatives may make your congregation more desirable to candidates.

If you prefer for the minister to live in the parsonage, you can incentivize this by offering a higher Salary + Housing total if the minister takes the parsonage. Or, if you want to rent the parsonage or make it available for other congregational purposes, you can structure the offer so as to encourage the minister to find their own housing. (If you have a strong preference for using the parsonage as a rental or for other purposes, of course you do not need to offer it as a housing option for the minister.)

Are there other considerations?

 

1. The desirability of a parsonage will depend on the minister’s family situation, the location and condition of the parsonage, the cost and availability of other housing in the area, and other factors. If the parsonage is on or adjacent to the congregation's property, do not assume that this will be a selling point. Ministers often prefer a bit of physical distance from the congregation for privacy and boundary-keeping.

2. You may feel that there are advantages to having the parsonage occupied by someone with an ongoing relationship to the congregation versus an outside tenant.

3. Under either scenario, you will be responsible for maintenance of the parsonage. You will need a volunteer or committee or staff member to attend to needed maintenance under either scenario. If you are renting the parsonage to an outsider, you will also need someone (volunteer, staff, or paid property manager) to manage the rental.

4. If a minister lives in the parsonage, they will be losing out on the appreciation they would have gotten if they owned a house. Some churches designate an equity allowance for the minister to make up for some of this loss of appreciation.

This guidance cannot be considered tax or legal advice as the Office of Church Staff Finances staff are not legal or tax professionals. We developed this page with the assistance of Jim Peterson, a volunteer Compensation Consultant in the New England Region who has supported multiple congregations with parsonages.

We recommend the Church and Clergy Tax Guide from the Church Law & Tax Store as an additional resource; it contains a chapter on Parsonage and Housing Allowances. Republished annually, you can order it either as a softcover book or as a downloadable PDF.