Retired ministers may still receive a housing allowance as part of their pension or retirement distributions. The IRS allows eligible retired clergy to exclude all or part of this allowance from taxable income, as long as certain rules are followed.
🧾 Can Retired Ministers Exclude a Housing Allowance?
✔️ Yes — if the pension or retirement income is paid because of past ministerial service.
IRS guidance extends the housing allowance exclusion to retired ministers when the payments come from compensation for past ministry work.
This is confirmed in IRS Revenue Ruling 63‑156, which states that retired ministers may exclude from income the portion of their pension designated as a housing allowance, up to certain limits.
📘 How the Housing Allowance Limit Works
You may exclude the smallest of the following three amounts:
1️⃣ The amount officially designated as a housing allowance
The organization paying your retirement income (pension board, denominational fund, etc.) must designate the amount in advance.
2️⃣ Your actual housing-related expenses
Examples include:
- Rent or mortgage payments
- Utilities
- Repairs & maintenance
- Property taxes
- Home insurance
- Furnishings
3️⃣ The fair rental value (FRV) of your home
This includes your home furnished and with utilities.
📝 Any amount above the lowest of these three limits becomes taxable retirement income.
🏦 How the Exclusion Affects Your 1099‑R
If your retirement payer designates part of your pension as a housing allowance:
- Box 1 of Form 1099‑R shows the total distribution
- Box 2a may be blank, because the taxable amount depends on your housing exclusion
- You determine the excludable portion based on your expenses and FRV
Some tax systems (e.g., UltraTax) allow entry of:
- Designated housing allowance
- Actual housing expenses
- Fair rental value
…then automatically compute the taxable portion.
🛠️ How to Enter Housing Allowance for Retirement Income in the Program
📍 Step 1 — Navigate to the 1099‑R Entry Page
Go to:
- Federal Section
- Income (Select My Forms)
- 1099‑R, RRB, SSA
- Add or Edit a 1099‑R
🧾 Step 2 — Enter Your 1099‑R Information
On the 1099‑R entry page:
✔️ Box 1 — Gross Distribution
Enter the full amount shown in Box 1 of your Form 1099‑R.
🏠 Step 3 — Subtract the Housing Allowance
You must subtract the amount of your ministerial housing allowance from the gross distribution.
Example:
- Box 1 Gross Distribution: $20,000
- Housing Allowance: $8,000
- Amount to enter in Box 2a = $12,000
🧮 Step 4 — Enter Taxable Amount in Box 2a
After subtracting the housing allowance:
✔️ Box 2a — Taxable Amount
Enter the difference (gross distribution minus housing allowance).
☑️ Step 5 — Check the Required Box
Under Box 2b, check:
✔️ “Taxable amount not determined”
This is required because you calculated the taxable amount manually after excluding your housing allowance.
📌 Step 6 — Complete Remaining 1099‑R Fields
Enter all other information from your Form 1099‑R as it appears.
Then click:
👉 Continue
(to save your 1099‑R entry)
📝 Final Required Step — Complete the Clergy Tax‑Free Worksheet
After entering your 1099‑R:
You must also complete the:
✔️ Clergy Tax‑Free Income Worksheet
This allows the program to properly account for your housing allowance for income tax purposes.
🏡 Examples of Qualified Housing Expenses
You may include expenses used to provide a home, such as:
- Mortgage payments or rent
- Utilities (gas, electricity, water)
- HOA dues
- Repairs and maintenance
- Home furnishings
- Property insurance
- Real estate taxes
These expenses must apply to your primary residence.
❗ Important Notes
📌 The housing allowance must be designated before payment
It cannot be applied retroactively, even for retirement distributions.
📌 You must keep records
You do not submit receipts to the IRS, but you must have documentation if requested.
This is standard guidance for retired ministers.
📌 Not all retirement income qualifies
Only distributions representing compensation for past ministerial service qualify.
This rule is established in IRS Revenue Ruling 63‑156.