Minister's Housing Allowance

With some exception, all CMM employees are considered ministers of the Gospel for employment purposes. Any CMM employee recognized as a minister of the Gospel for employment purposes is eligible to have a portion of their income designated as a Minister’s Housing Allowance (MHA).

According to the IRS, employees recognized as ministers of the Gospel are considered dual status for employment tax purposes. These individuals are considered employees for income tax purposes and are considered self-employed for Social Security & Medicare (SS&M) purposes. As such, an employer is not allowed to withhold FICA (SS&M) for these employees. It is the responsibility of the employee to save throughout the year, report SS&M wages on Schedule SE with their annual tax return and pay them at that time. However, at the request of an employee, an employer may over-withhold on Federal Income Taxes at an equivalent rate that would be withheld for FICA.

For the benefit of our staff, this is the position taken by the CMM. Unless explicitly requested otherwise by staff, the CMM will over-withhold Federal Income Taxes to compensate for the non-withholding of FICA taxes for employees considered ministers of the Gospel. This approach allows staff to “pay in” to the federal government an estimate throughout the year for what they will owe on their tax return. This over-payment will show up as a refund on your year-end tax return, but should be used to pay for the self-employment tax calculated on Schedule SE.

The purpose of the MHA is to reduce a minister's wages subject to state and federal income tax. The MHA has NO effect on one's wages subject to Social Security & Medicare taxes. For example, if Joe has a monthly salary of $5,000 with a combined state & federal income tax rate of 20%, Joe will have $1,000 in income taxes withheld each month. However, if Joe designates $1,500 of his monthly salary as MHA, he only pays income taxes on $3,500 of his monthly salary. If this were the case Joe would only have $700 in income taxes withheld per month.

For a portion of your income to be designated as MHA, Staff must the

MHA Application. CMM’s board has delegated authority for approving MHAs to CMM leadership. Each application will be reviewed and If submitted and approved before the 24th of the month, the designation will go into effect for the month in which it was submitted. Otherwise, it will go into effect in the following month. If an MHA application is approved, that staff's payroll is divided between the housing allowance and taxable salary. The housing allowance will be excluded from income taxable wages and reported separately on the W-2 (Box 14). Any unused portion, see below, should be included as additional income on the "other income" line of form 1040 on your tax return.

Please follow these instructions on this page if you need help calculating your monthly housing allowance. Staff are encouraged to review and update their MHA designation as needed; however, this should be done sparingly. Each submission will be reviewed by CMM leadership.

Your MHA is calculated by estimating your housing costs throughout the remainder of the tax year and dividing that amount by the number of months remaining in that tax year. The MHA cannot be retrospectively applied.

The maximum annual MHA is based on the lesser of actual housing expenses, your total MHA designation from the year or the fair rental value of your home. Fair Rental Value is what it would cost to rent a comparable home in your neighborhood. A rule of thumb among realtors nationwide used to be that the Fair Rental Value of a home amounts to 1% of the appraised value per month. For example, if your home is appraised at $150,000, the monthly Fair Rental Value would be $1500. If, at the end of a tax year, a minister realizes their designated allowance exceeded either their actual expenses or their homes FMV, that minister must include the excess MHA as taxable income on their tax return.

It is YOUR responsibility to keep receipts and maintain all records substantiating housing costs. Do not submit these records or receipts to the CMM. We suggest keeping a separate report within your Expensify app specifically for your MHA expenses. When completing your federal income tax return, you will compare your actual expenses with your designated housing allowance for the tax year and your homes FMV. If the amount designated is greater than the either of the other amounts, it is YOUR responsibility to show the excess housing allowance on your tax return, which you will then pay taxes on.

Please see the below for descriptions and suggested ranges for categories typically used in calculating a MHA. The below are only suggestions. It is up to you to determine what amounts to use in calculating your MHA.

Below is a reference to assist in calculating your MHA.

The above list is only intended to be used as a reference. Each staff person is responsible for calculating their own housing allowance.

The CMM encourages all staff to engage a tax professional when filing their annual income tax return. The above is intended for information purposes only and should not be understood as tax advice.

If you have any questions please reach out to the Finance Team at [email protected].