Housing Allowance

[Guest David Blask]

Is it possible for a portion of a distribution made from a Minister's 403(b)account to be designated as "Housing Allowance" and so avoid taxation. If yes, what sorts of requirements would need to be met? If this is possible, would the distribution typically trigger a 1099R on the entire amount? Any comments would be appreciated.

[Guest Danny Miller]

Yes, it is possible to have all or a portion of a minister's 403(B) plan retirement benefit payment treated as housing allowance. Two IRS Revenue Rulings indicate this is possible.

For this to work, the employing church of the retired minister would need to make a declaration that all or a portion of the minister's retirement payment is eligible to be claimed as housing allowance, within the limits permitted by law. Arguably, this can be done once, at the inception of benefit payments. Some churches make this designation annually for their retired clergy.

As to 1099R issues, you would need to use one of two approaches: 1. Show the gross amount of retirement payments on Line 1 and check the "taxable amount not determined" box on line 2, or 2. Net out the housing allowance and only show the taxable amount on line 1. (The latter approach really only works if you know for certain the actual amount of nontaxable housing allowance.)

Hope this helps.

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Danny Miller

Conner & Winters

1050 17th St., N.W.

Suite 810

Washington, D.C. 20036

(202) 783-5711

dmiller@cwlaw.com