Ministry in Context

Another Tax Tip

In response to a student question as to whether parsonage value was taxable if provided by the church, tax accountant Mark Friesen has provided this information:

Like other fringe benefits, free or discounted church-provided lodging is usually subject to income and other taxes. To determine the fair market value of the housing provided to an intern, the church may check local newspaper listings for comparable rental properties or ask a local realtor for an estimate of the property’s rental value. The church reports the net value of the intern’s lodging fringe benefit in Box 1 of the intern’s W-2 form, and the intern declares this value as income on Line 7 of IRS Form 1040. For example, if the intern is provided housing and does not pay the church rent and the property's fair market rental rate is $600 a month, the church must add $600 a month to the taxable income it reports on the intern's W-2.

A church can exclude the value of housing provided to an intern if the lodging meets three conditions. The church must furnish the lodging on its property. The lodging must be furnished for the convenience of the church, which means that the church must have a valid purpose for providing housing beyond giving the intern additional compensation. The intern must also accept the lodging as a condition of employment, which means that the intern cannot have the option of accepting or declining the lodging. If any of these conditions are not met, the church must include the net value of the lodging on the intern’s W-2 form, and the intern must report that amount as income on his tax return.

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