Parsonage Allowance

[Earl]

Client is a private High School with religious affiliation.

They want to include Rabbi/Head of School's parsonage allowance in the determination of the company contribution (5% of pay.)

I find for common law employee this is not taxable income so I don't see any authority to include this in wages.

is there something I am not finding?

Thank you

[Lois Baker]

This might be of interest:

https://benefitslink.com/news/index.cgi/view/20171214-139875

[Kevin C]

If you are looking for a cite,

Quote

1.414(s)-1(a)(2) Limitations on scope of section 414(s). Section 414(s) and this section do not apply unless a provision specifically refers to section 414(s) or this section. For example, even though a definition of compensation permitted under section 414(s) must be used in determining whether the contributions or benefits under a pension, profit-sharing, or stock bonus plan satisfy a certain applicable provision (such as section 401(a)(4)), except as otherwise specified, the plan is not required to use a definition of compensation that satisfies section 414(s) in calculating the amount of contributions or benefits actually provided under the plan.

 

[JRN]

The starting point is always, “what does the Plan document say?” Does the Plan document define “Compensation” to mean the participant’s W-2 wages?

Housing allowances are not included in W-2 wages. Therefore, you should not include in calculating the employer contribution.

But, can the Plan simply amended to include housing allowances as compensation for Plan purposes. The answer here is “yes”, but with two very important caveats.

You cannot include housing allowance if that would cause the Plan to fail either the general non-discrimination test or the Code Section 415(c) annual addition test.

First, with respect to the general nondiscrimination test: This issue is only relevant if one or more of the employees who receive housing allowances are a “highly compensated employee” (HCE).

Second, 415(c) is an issue if they are able to defer, i.e., make 403(b) contributions from housing allowance.

This could be an issue if they were allowed to defer from housing allowance (but, this does not make sense because aren’t they supposed to use the housing allowance for housing?)

Comp including housing allowance = $40,000. $18K is wages; $22K is housing allowance. Employer contribution - 5% - is $2,000. Suppose employee defers $18K. Annual addition is $20K, which is more than 415(c) compensation of $18K.

But, in any event, should not be able to defer from housing allowance because this is supposed to be used for housing.

[BeckyMiller]

See Rev. Rul. 73-258 which supports what is described above. Housing allowance may be included as compensation for plan allocations.  But the plan would have to specifically state that and comply with Section 415.

 

[david rigby]

On ‎12‎/‎14‎/‎2017 at 11:09 AM, Earl said:

Client is a private High School with religious affiliation.

Does "church plan" apply?

[Earl]

Thank you all very much.   Incredibly helpful.