The number one financial question among bivocational pastors is “Can all my income be in housing allowance?” Answer: “Yes, if that is appropriate for your situation.”
The average bivocational pastor in Alabama makes about $19,000 per year from their church, so for many, it would be reasonable. Ministers should consider their particular situation as they make their request to the church.
The second question from bivocational pastors: “Is there a limit to housing?” Many bivocational churches mistakenly believe that there is a limit of 50% of income. Actually, there is no percentage limit; it can be up to 100% of income if appropriate.
There is a third question that should be asked but rarely is: “Should I have 100% of my income as housing?”
The best answer is, “No, have some as taxable income so that you may participate in the Church Retirement Plan.” (Participation in any retirement plan requires taxable earned income.)
To reiterate: Be sure to have some of your income as taxable so that you can participate in the Church Retirement Plan. You will have the following advantages by participating:
1. Tax savings now and preparing for retirement.
2. Extra benefits: survivor benefit, disability benefit and possible contributions of up to $17.50 per month. All three of these benefits are paid by GuideStone and the State Board of Missions.
3. In retirement, you can receive a tax-free housing allowance from a denominational provider such as GuideStone. Generally, you cannot receive a housing allowance from another mutual fund company.
4. Also, if the church budget is less than $75,000, you should apply for the Mission/Church Assistance Fund through GuideStone. You could receive an additional $50 contribution into your retirement account each month from GuideStone for up to five years.
How should my income be reported?
Ministers who serve a church such as a pastor should receive a W-2.
“If 100% is housing, do I need a W-2?” No, a W-2 is not required because there is no taxable income for federal tax. Of course, all housing allowance is subject to Self-Employment Tax.
The amount of housing allowance could be reported to the minister in the form of a memo on church letterhead.
If I have some taxable income, do I receive a W-2 or 1099?
Answer: W-2. If you have any taxable income in addition to your housing allowance, you should receive a W-2.
If I receive a bonus or love offering from the church, does that need to be included on the W-2? Yes.
Compensation Planning for the Bivocational Church
The average bivocational pastor in Alabama has about $19,000 in salary and housing and about $1,500 in benefits. The church should provide an Accountable Reimbursement Plan for ministry business expenses and whatever benefits the church can provide.
Churches should establish a system of salary and benefits rather than salary alone.
This practice will reduce taxes and provide benefits that are needed by the employee.
These benefits could include retirement contributions, group term life insurance, as well as medical, dental and disability insurance.
An excellent guide for best practices for the church can be found at GuideStone.org/CompensationPlanning.