Effective salary includes any compensation received during a Benefits Plan year by a Plan member, including, but not limited to, any sums paid for housing allowance (including utilities and furnishings); 30% of all other compensation for a manse; deferred compensation (funded or unfunded); bonuses; lump sum allowances; and other items credited to a member by an employing organization during a Plan year.

Effective salary does not include amounts received through an accountable reimbursement plan or Social Security up to 50% of a minister’s Self-Employment Contribution Act (SECA) obligations.

The manse value included in effective salary must be at least 30% of all other compensation.

Reporting Effective Salary

Report any changes in effective salary using the Service Change or Change of Salary forms. Use the Total Effective Salary Calculator to help determine effective salary for Benefits Plan purposes.

Housing Allowance

Federal (and some state) tax laws allow a minister of the Word and Sacrament to exclude that part of his or her compensation designated as housing allowance. Some commissioned lay pastors may also qualify for this exclusion.

If the employer provides housing at no charge to the member as part of the member’s compensation, it must be reported to the Board as part of effective salary. The reported amount must be at least 30% of all other compensation.

For the housing allowance exclusion, the IRS requires that:

• The church or organization designates the amount before it is received. It should be stated in dollars. This designation is usually made by the session as part of the terms of call.
• The amount a minister excludes actually be spent on housing-related expenses. It is not necessary to file proof with the income tax return, but receipts must be kept and made available in an audit.
• The amount excluded does not exceed the fair rental value of home, including furnishings, utilities, garage, etc.

Regardless of the fair rental value used for income tax purposes, the manse value included in effective salary must be at least 30% of all other compensation. Any housing allowance paid is tax exempt only for federal income tax purposes. The housing allowance must be included when the minister calculates his/her SECA obligation.

For more information on this tax exclusion, please refer to Internal Revenue Service Publication 517 and the “Federal Reporting Requirements for Churches” that is part of the Board’s Tax Guide for Ministers and Churches.