Question

How are a clergy housing allowance and the fair rental value of provided housing treated for tax purposes?

O For all clergy, the amounts are excluded from gross income for both SE and income taxes.

O For active clergy, the amounts are included in gross income for SE and income taxes.

O For all clergy, the amounts are excluded for SE tax, but included for income tax.

O For active clergy, the amounts are included in gross income for SE tax, but excluded for income tax.

Answer 1

Active clergy can exclude their housing allowance or the fair rental value of provided housing from gross income for income tax but must include it for self-employment taxes.

Step-by-step explanation:

For active clergy, the amounts they receive as a clergy housing allowance or the fair rental value of provided housing are treated in a specific way for tax purposes.

These amounts are excluded from gross income for income tax purposes, but are included in gross income for self-employment (SE) taxes.

The Internal Revenue Code provides a special provision for members of the clergy, allowing them to exclude the housing allowance or rental value of a home provided by the church from their income for income taxes. However, when it comes to SE taxes, which fund Social Security and Medicare, the allowance must be included.

This distinction is crucial for clergy members to understand when preparing their taxes, as it affects how they calculate their adjusted gross income and ultimately their taxable income.