Housing Allowance: What Every Minister Should Know

Housing allowance is among the most valuable tax benefits available to ministers, but it’s also one of the most misunderstood. To clear up the confusion, we created this quick guide to answer some of the top questions we hear from ministers about housing allowance.

What is Housing Allowance? 

Housing allowance is a portion of ministerial compensation that is designated to cover housing expenses. This compensation can be excluded from federal income tax, which creates a meaningful benefit for ministers.

However, timing is crucial when it comes to designating housing allowance from income, so it’s important to understand the rules.

• The Earning Phase: During your earning years, housing allowance must be approved by your church or employer before your paychecks are issued. Housing allowance cannot be applied retroactively.
• The Distribution Phase: During your retirement years, housing allowance must be designated before you receive distributions from your retirement account.

Does Designating Housing Allowance From My Income Affect My 403(b) Contributions?

After more than 75 years working with Assemblies of God ministries, we can say with confidence that this is one question that confuses most ministers.

403(b) contribution limits are based on taxable income. For 2026, the salary deferral limit is $24,500 or 100% of your taxable income, whichever is less. Designating any portion of your salary as housing allowance excludes that amount from your taxable income. While this may lower your tax liability, it also impacts how much you can contribute to your 403(b) retirement account.

For example, if your total salary is $50,000, and you designate $40,000 as a housing allowance, only $10,000 would be considered taxable income. Therefore, your maximum 403(b) contribution is just $10,000, or 100% of your taxable income, even though the salary deferral contribution limit for 2026 is $24,500.

This poses a complex decision for ministers: do you designate a large portion of your income as housing allowance to reduce your tax liability today or do you contribute that income to a 403(b) retirement account to save more for retirement later? Fortunately, our retirement specialists at GenFi are well-equipped to help talk you through this decision.

Who Can Designate Housing Allowance?

Ordained, licensed, or credentialed ministers, whether active or retired, may be eligible to claim housing allowance, so long as they have qualified housing expenses (see the next question).

What Are Some Common Expenses That Qualify as Housing Allowance?

A wide range of housing-related expenses can qualify toward housing allowance, including:

• Home down payment
• Mortgage payments
• Furnishings and appliances
• Home repairs, maintenance, and remodeling
• Utilities
• Property insurance  

If you’re uncertain whether a specific expense qualifies, don’t hesitate to consult a tax professional for guidance.

Is there a limit to how much Housing Allowance can be designated from income?

The IRS limits the amount that can be excluded from taxable income to the lesser of these three amounts:

• The amount officially designated by your church or employer.
• The amount you actually spend on qualified housing expenses.
• The fair market rental value of your home.

How Is Housing Allowance Applied During Retirement?

One of the key benefits of housing allowance is that it doesn’t stop when you reach retirement.

Typically, 403(b) distributions are subject to federal tax withholding, serving as a prepayment toward your ordinary income tax bill. However, if you designate a portion of your distribution as housing allowance, you may be able to exclude that portion from your gross income entirely. This means the amount could be excluded from federal income tax, and any income tax withholding requirements on that portion may be reduced or even waived.

Eligibility depends on factors including age and qualifying housing expenses, so we recommend speaking with a retirement specialist to understand how this applies to your situation.

Still Have Questions?

Housing Allowance is one of those topics that seems complex and has many moving parts. If you’d like to talk with one of our retirement specialists about how housing allowance could benefit you during retirement, we’re ready to help!

Reach out to our retirement team at retirement@genfi.com.