Mistakes to Watch Out for on Your 2024 Taxes: Housing & SECA

I’m not a CPA or tax preparer, but when I build a financial plan, I review my client’s tax returns for planning purposes. Of my clients in ministry, about half of them have mistakes on their tax returns.

The biggest mistakes I see are usually related to the housing allowance and paying SECA taxes. SECA taxes are Social Security and Medicare taxes, also referred to as payroll taxes or FICA. For those who opted out of Social Security, none of this discussion of SECA taxes is applicable.

While the amount of housing allowance is exempt from federal (and most state) income taxes, it is NOT exempt from SECA taxes. The way this looks on the front of Form 10401 where income is reported, only non-housing compensation is included. Then, the value of a parsonage or housing allowance is added back into compensation on Schedule SE2 where SECA taxes are calculated.

A common mistake is not including housing on Schedule SE. Many pastors use the same non-housing compensation number from Form 1040 when calculating their SECA taxes. Though usually done completely innocently, this is tax evasion. Legally, you are required to pay SECA taxes on your cash housing allowance and the full value of your parsonage and church-provided housing. In addition, not reporting it as compensation and paying the related SECA taxes decreases the Social Security retirement benefits you will be eligible for since benefits are based on your income history. What I often hear from my blog readers who prepare their own taxes is something like this:

“When the software asked if I was in ministry and I clicked yes, then my taxes increased by $xx,xxx, so I didn’t click the box.” Not clicking the box means you’re not paying your SECA taxes. You see, for non-ministerial employees, their Social Security and Medicare taxes are taken out of their pay throughout the year by their employer, so they don’t pay them when they file their return. Clicking the box to say that you’re a minister acknowledges that you haven’t paid those taxes yet and asks the software to calculate them for you. If you’re in ministry, you need to click that box.

Similarly, I have seen ministers under-report the value of their parsonage on Schedule SE. The compensation related to the parsonage should be what an outside, unrelated person would be willing to pay for the same use of the home and any other housing benefits the church provides, such as utilities.

That always leads to the question: how do you figure out the value of a parsonage? There isn’t one set way mandated by the IRS, but one common approach is to consult a local real estate agent, which is likely the most accurate method. Another way is to find information online, such as Zillow’s rent estimate. Some even use a percentage of the home’s current value. While there isn’t one right way to find the fair market rental value of a parsonage, the IRS mainly wants to see that you used a rational and reasonable method.

Your key takeaway, if you live in a parsonage, should be that if you’re claiming the same value on your taxes as you did in 2020, you are likely underreporting. Nationally, average rent increased by 24.2% between 2020 and 2024.3 Every housing market is different, so you will want to base your numbers on your local market, but it is good practice to recalculate the value of a parsonage every year or at least every couple of years.

Unless you really enjoy taxes, I usually recommend that ministers hire a professional. However, not just any tax preparer will do. Clergy taxation is very unique, so most tax professionals do not understand it at all. If your tax preparer doesn’t know you’re dual-status, find a new one. There is a list of tax preparers specializing in clergy on my blog here: pastorswallet.com/clergy-tax-preparers/. I have not personally worked with any of them, but they have been recommended by my blog readers who are clergy. I recently built a financial plan for a client who discovered they had paid about $100,000 in taxes over the past 20 years that they did not actually owe, so working with a knowledgeable professional can definitely be worth the cost!

Amy Artiga is a Certified Financial Planner (CFP), a Certified Kingdom Advisor™, and author of the clergy personal finance blog PastorsWallet.com. Send questions for Amy to benefits@nazarene.org.

1 https://www.irs.gov/pub/irs-pdf/f1040.pdf

2 https://www.irs.gov/pub/irs-pdf/f1040sse.pdf

3 https://ipropertymanagement.com/research/average-rentincrease-per-year

Note: This material is provided for informational purposes only. The author and NBUSA do not provide tax, legal, or accounting advice.