Housing Allowance Resolution: What Your Church Board Needs Before January
Before your church sets the 2027 budget, make sure this is in the minutes.
The Conversation That Happens Every January
It usually starts with a tax preparer asking a simple question:
"Can you send me the board minutes that designate your housing allowance?"
And the pastor realizes there's nothing in writing for this year. Maybe the December meeting got moved. Maybe the treasurer changed. Maybe everyone assumed last year's resolution carried over, but it only covered last year.
If no designation is in effect, that gap can cost a pastor thousands of dollars in tax. And it can't be fixed after the fact.
Why This Matters for Pastors
The housing allowance is one of the most valuable tax benefits a minister has. Under Section 107, the portion of your pay designated as housing allowance can be excluded from federal income tax.
But the IRS only allows it when the church designates it in advance and in writing. A board vote recorded in the minutes, a written resolution, or the approved budget. It has to be in place before the payment is made. There is no retroactive housing allowance.
If nothing is designated, the pastor's housing costs are taxed like the rest of the salary.
It Doesn't Cost the Church Anything
Board members sometimes hesitate because they think the housing allowance is an extra benefit. It isn't.
It's a designation on part of the salary the church is already paying. If a pastor earns $65,000 and the board designates $25,000 of it as housing allowance, the church still pays $65,000. The budget doesn't change. Only the pastor's tax bill does.
What the Resolution Should Include
A good resolution is short. It should include:
- The minister's name. Every credentialed staff minister needs their own designation, not just the lead pastor.
- The dollar amount.
- The year it applies to.
- A sentence that keeps it in effect until the board changes it.
That last line is the one most churches leave out, and it's the one that protects a pastor when a meeting gets canceled. Here's sample wording a board can adapt:
Resolved, that of the total compensation paid to Rev. [Name] for calendar year 2027, $[amount] is designated as a housing allowance under Section 107 of the Internal Revenue Code. This designation shall remain in effect for subsequent years until amended or rescinded by the board.
Record it in the minutes, and give the pastor a copy for their tax file. If you'd rather start from a finished document, the Church Board Finance Toolkit includes a ready-to-adopt housing allowance resolution you can fill in and sign.
How Much Should Be Designated?
The pastor should give the board an estimate of next year's housing costs. That usually includes:
- Mortgage payments or rent
- Property taxes and insurance
- Utilities
- Repairs and maintenance
- Furnishings and appliances
It's wise to build in some room. The amount the board designates is a ceiling. At tax time, the pastor can only exclude the smallest of three numbers:
- The amount designated
- What was spent on housing
- The fair rental value of the home, furnished, plus utilities
Any housing allowance paid above that smallest number is reported as income. Setting the designation too low can limit the pastor's exclusion, so build in reasonable room for unexpected housing costs.
Pastors can get this wrong too. I recently talked with a pastor whose housing allowance was designated and recorded properly. But they didn't keep receipts, and their actual housing costs came in under the designation. The unused amount should have been reported as income. It wasn't.
The board's job is to designate it. The pastor's job is to track what was actually spent and keep the records.
One more thing pastors should know. The housing allowance is still subject to SECA, the self-employment tax, unless you opted out of Social Security through an IRS-approved exemption (Form 4361). It's excluded from income tax, not from self-employment tax. IRS Publication 517 covers both rules.
What a Lot of Churches Miss
- No standing clause. The December meeting gets canceled, and the pastor starts January without a designation.
- Staff ministers left out. The lead pastor has a resolution. The associate and the youth pastor don't.
- Mid-year hires. A new minister's housing allowance should be designated before the first paycheck.
- The pastor voting on their own pay. It's best for the pastor to provide the estimate and step out while the board votes.
If costs change during the year, the board can amend the designation. But the change only applies going forward.
How to Bring It Up
Most pastors don't like raising anything connected to their own pay. You don't have to make it about pay. Make it about the paperwork.
Something like: "Before we finalize next year's budget, can we make sure the housing allowance resolution is in the minutes? I'll bring an estimate of my housing costs."
Most boards are glad someone reminded them. If your board has bigger compensation questions on the table, When the Board Says "We Need to Meet" may help.
Get the housing allowance resolution, ready to adopt.
The free Church Board Finance Toolkit includes a fill-in housing allowance resolution, plus the accountable reimbursement plan, benevolence fund policy, financial controls policy, and giving and receipts kit. Enter your email once and download all of it.
Get the free toolkit →If you're a pastor getting closer to retirement, the housing allowance doesn't have to end when your ministry does. Here's how it can continue in retirement.
One Vote
Paul wrote that he aimed at "what is honorable not only in the Lord's sight but also in the sight of man" (2 Corinthians 8:21, ESV). A resolution in the minutes is a small way to do that.
It's one vote. Make sure it happens before January.
Pastoral Finance is educational content for pastors and ministry leaders. It is not individualized financial, tax, or legal advice, and it is published independently of Legacy Path Advisors LLC. Confirm details with a qualified tax professional who understands clergy taxation.
