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“This is jeff pospisil. The ten minute treasure with practical advice for improving your church church s financial future and in this one. What we re going to talk about the difference between the housing allowance versus the housing exclusion. This is often confused pastors treasurer s finance committee.
I get questions about this what is the difference there is confusion on that a lot of times. What i try to do is i try to say cash. Housing. Allowance and designated housing exclusion.
Just try to make it a little bit different you know where i m trying to make it the emphasis that a cash housing allowance. Its cash paid out designated housing exclusion is a part of the salary that s designated anyway we ll get into it what s the difference and why it s important all right the cash housing allowance is an extra amount of money given over and above the salary when the church does not provide a parsonage so it s it s cash provided in lieu of a parsonage and this can be paid out either with the paycheck or in a separate check. I don t think it matters as long as you account for it correctly and report it to the irs correctly so but it is money over and above the salary given. Because you are not providing a parsonage.
So this isn t usually negotiated between the church and the pastor and or district superintendent. So it s a it s a negotiated at one it really isn t dependent. So much on the actual housing expenses either so. If the pastor decides to live in a.
I don t know an efficiency apartment that costs next to nothing so be it if the pastor decides to live in a halfway mansion. So be it that does not determine the amount of the cash housing allowance. It s the negotiation between the church and the pastor. So the actual expenses those are what they are and if you re a member of the dakotas united methodist found a conference and you fill out your clergy compensation form.
There s actually a little spot there to designate. It and that s where you would designate that cash that s given over and above or instead of providing a parsonage. So you write know in is their parsonage. Provided and then you d put that amount right there right the designated housing exclusion.
This is different than the cash housing allowance in that we are actually designating a piece of the salary. So whatever the salary is the pastor and the church are working to designate that this actually doesn t cost the church anything. But it is helps reduce the the pastor s tax bill that s all it is i mean it s one of those things that the irs has decided to allow to reduce the tax bill and guess what if you provide a parsonage or you don t they can use this so. If you provide a parsonage this covers all those unreimbursed costs that the pastor might incur so for example.
If the pastor buys and it covers a lot of things so like renter s insurance you know cleaning supplies if they do any of the yard maintenance. If they buy any furniture or decor for the house those kinds of things anything that the pastor buys. And it s not being reimbursed. You know so.
Like the pastor buys a couch you wouldn t expect that to be reimbursed. But the pastor can if they have money designated from their salary as a housing exclusion then they can end up writing that off for tax purposes. Same thing to with the the cat. If you don t provide a parsonage.
So a pastor will look at the cash housing allowance that they receive and then they ll have to estimate are there other costs over and above that you know is this enough to cover all my costs or do i need to designate part of my salary to cover those additional costs because they ll have to they ll have utilities and a mortgage and insurance and property taxes. All that kind of stuff as well as you know maintenance everything all the costs associated with that property. Plus. The furnishings and cleaning and all that kind of stuff all those can then be written off for tax purposes.
Assuming that they have enough in their cash housing. Allowance plus. Their designated housing exclusion. So that is the difference.
The designated housing exclusion doesn t cost you the church anything. But it will save the pastor money and that they won t overpay there oh really for the cash. The designated housing exclusion. There s a couple of things to keep in mind first of all the amount is determined by the pastor.
Because it doesn t cost the church anything that the pastor or the pastor and their spouse should determine what amount is appropriate for them and for them it s better to estimate high because there s really no penalty. But there is you will overpay or your taxes. If you estimate too low. It s improve approved in advance.
So whether it s sbr cpp rc or the administrative council. A leadership team whatever you call it whatever body is over the pastor they need to approve it in advance so because there s no this can t be retroactive. So. If the pastor doesn t approve or doesn t set an designated housing exclusion before january 1.
Guess what they re gonna start missing out and then if they only remember by june. They re gonna only get that designated housing exclusion from june to december and they can t it doesn t go retroactive. It doesn t cover any of those expenses prior to june. Then so it s one of those things.
It has to be approved in advance pastor needs to keep the receipts and records. So whatever expenses. They get they re not going to be able to it s not automatic for them for tax savings. They actually need to keep some kind of records and receipts in order to be able to write it off because they ve got to match up those receipts and add up to hopefully as you know it s got a it doesn t have to add up to as much as the housing exclusion.
But it has to add up so and then the treasurer will have to complete the w2 correctly in order to take that off so that when they report that in box. One you take whatever is paid to the pastor and then you subtract out that exclusion and so where you see this is in on the clergy compensation form for dakotas united methodist pastors. There is a spot right here for the designated housing exclusion. So this is one again where you say how much do you want there.
And i ll plug that number in because it doesn t cost the church anything and so and it s up to them to produce the receipts to show how much they spent. I hope that helped again if you like this like and subscribe share. Whatever you can find us at wwdc org. Or dakota s umf org.
As this is a conference and foundation. Produced resource and again this is all about jesus mission in connection. Where we want to be connected as family in this great mission of making disciples of jesus christ our lord and savior alright until next time ” ..
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Housing allowances and housing exclusions are often mixed up and confused. Is there an easy way to keep these straight? One is paid out in cash and one is a designation of part of your salary that s as simple as I can get it.
– Clergy Tax Webinar: https://www.youtube.com/watch?v=5HIzf4Tgh84
– Housing Allowance Qu0026A: https://www.dakotasumc.org/media/files/old/00/Conference/Finance/Legal/Housing_Allowance_QA.pdf
– Housing Allowance Worksheet: https://www.dakotasumc.org/media/library/fluid-mod-page/137/documents/Housing_Allowance_Worksheet.pdf
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