Salary Suggestions & Considerations - January 1 - December 31, 2013 for Pastors, Teachers

 
Salary Suggestions & Considerations - January 1 - December 31, 2013 for Pastors, Teachers
Salary Suggestions
     & Considerations
  January 1 – December 31, 2013

     for Pastors, Teachers, and
 Other Professional Church Workers

        South Wisconsin District
  The Lutheran Church—Missouri Synod
     Phone: (414) 464-8100  In Wisconsin (800) 793-3678
    8100 West Capitol Drive, Milwaukee, Wisconsin 53222
                  Website: swd.lcms.org
Salary Suggestions & Considerations - January 1 - December 31, 2013 for Pastors, Teachers
October 2012

Dear friends and fellow servants:

We are pleased to share with you the 2013 Salary Suggestions & Considerations for pastors,
teachers and other professional church workers. The document is available on the District
website, under Resources.

While we recognize that there are a wide variety of economic and other situations among
congregations and schools throughout the South Wisconsin District, we know that the Scriptures
do share words of wisdom and direction regarding compensation for those who serve in our
congregations, schools, and other agencies.

Consider especially the words of St. Paul to Timothy in his first book, chapter 5 and to the
Christians at Philippi in chapter 4. As you seek to care for those who serve you in ministry, we
encourage you to demonstrate that genuine care and concern for the professional church workers
and their families in your midst.

To that end the Suggested Salary Schedule has been increased by only 2%. As you consider
compensation and benefits for your next budget, we encourage you to provide the best that you
can for those who serve in your midst. We are confident that the supplemental resources in the
document will assist you in the planning process.

God’s richest blessings to you now and always!

In His Service,

Rev. Dr. John C. Wille                           Mark L’Heureux
President                                        Superintendent of Schools
Table of Contents

Preamble & Purpose ............................................................................................................... 1

Suggestions for Implementation ............................................................................................. 2
   General Information

Compensation Schedule ......................................................................................................... 3

Salary Schedule Worksheet and Directions ......................................................................... 4-5

Preschool & Daycare Salary Schedule ................................................................................... 6

Additional Responsibilities and Compensation Information ................................................ 7-9

Guest and Visiting Pastors’ Compensation ........................................................................... 10

Examples of Computations .............................................................................................. 11-13

Worksheet — Compensation ................................................................................................ 14

Worker Salary and Benefit Information ................................................................................. 15

Congregation Treasurer’s Manual — Housing Allowance Information

Reduction in Force & Severance
Preamble

Pastors, teachers and other professional church workers are gifts from God to the people and
congregations (associations) of our District (Ephesians 4:11). Implied in these words are all professional
workers. Our care of these workers reflects our own high regard for the divinely instituted Office of the
Holy Ministry (Galatians 6:6). All workers are due a salary comparable to their professional peers,
house or housing allowance, and health, retirement and survivor benefits (I Timothy 5:18). Those who
have demonstrated unusual faithfulness in their labors certainly deserve additional consideration (I
Timothy 5:7).

Proper care for our workers means more than just financial compensation (I Thessalonians 5:12-13). We
want our workers to devote sufficient time to their personal lives, lest in tending the household of God
they neglect their own families to their sorrow and the disgrace of the church (I Timothy 3:4-5).
Therefore, it is meet, right and salutary that the congregation (association), through its responsible
officers, should ensure adequate vacation and weekly rest.

We also desire emotional support for our workers, their spouses and children, as they conduct their
ministries, to encourage a radiant and joyful sharing of the Gospel. So we remind each other to pray for
them, to encourage them by our words and actions and to appreciate their need to gather frequently with
other peers and professionals.

Continuing education is also important. Our workers need to relate to the issues of the day in order that,
through their understanding, our witness to the world might be winsome and persuasive. The
congregation (association) will want to make time and funds available for the worker’s continuing
education (II Timothy 2:15).

                                               Purpose

These compensation guidelines are designed to encourage fair and equitable compensation within the
pastoral, teaching and related ministries of our District on the basis of:

       • Years of experience
       • Professional growth and/or formal education
       • Levels of responsibility

We are also committed to equal pay for equal work for both men and women. Normally, workers
serving on a ten-month contract were given 10/12 of the appropriate salary classifications.
Congregations (associations) are encouraged to consider placing all contract teachers on a twelve-month
contract after two years of satisfactory service.

                                                     1
Suggestions for Implementation & General Information

I.    ORGANIZATION
        Pray often for God’s blessing on your task.
        Appoint a special committee to study salaries and benefits for all workers in your midst. You
         will want to include members of your boards of: education, elders, stewardship and other
         appropriate boards and committees. Your pastor(s) and principal might also be advisory
         members of this committee.
        Collect materials, resources and statistics that include the following information (but does not
         exclude additional information):
              South Wisconsin District Suggested Salary and Benefit Considerations.
              Your present salary and benefit schedules and policies.
              Local public school salary and benefit information.
              Other statistical information about your community (available at such locations as your
               local public or college libraries, city hall, county courthouse, chamber of commerce,
               public utilities). You may want to look for information, for example, on how your
               community or county compares to others in the area.

II.   STUDY
      Consider the following:
          The purpose and mission of your congregation (association) and its ministries including the
           Christian day school where one exists.
          A careful and honest evaluation of present salaries and benefits offered to your workers. (The
           guidelines provide a tool for comparison.)
          A comprehensive study of job descriptions, responsibilities, expectations and division of
           tasks among staff persons.
          A thorough comparison of community statistical information including salaries and benefits
           paid in your local public schools and other professional personnel. (Check your local library
           for sources.)
          A review of your congregation’s (association’s) financial resources, funding patterns and
           capabilities.
          A study of alternative funding sources including tuition, third source funding, establishing a
           foundation to benefit the educational program, fraternal agencies and other opportunities
           which may be unique to your congregation and community.
          A study of the salary and benefit suggestions of the South Wisconsin District.

III. ACTION
       Establish a plan for coordinating your findings with the salary and benefit suggestions of the
        South Wisconsin District.
       Consider a plan for implementation which will effectively install your guidelines over a
        period of time (for example 85% of goal in the first year, 92% in the second year and 100%
        in the third year).
       Share the specifics of their personal salary and benefit packages with each of your workers
        (salary, Concordia Plans, other benefits). A sample form is included at the end of this
        booklet.
       Continue to pray for God’s blessings on the pastoral, educational and outreach ministries to
        congregation (association) and community.
                                                    2
South Wisconsin District Suggested Salary Schedule                                                            Base 12 Month Salary
January 1, 2013 — December 31, 2013                                                                                       $37,711
  Year     Factor            BA         Factor          MA          Factor    MDIV/PHD-ED          Factor      STM/DMIN          Factor PHD/THD
    0      1.000          37,711        1.100         41,483        1.250         47,139           1.300         49,025          1.350   50,910
    1      1.040          39,220        1.140         42,991        1.290         48,648           1.340         50,533          1.390   52,419
    2      1.080          40,728        1.180         44,499        1.330         50,156           1.380         52,042          1.430   53,927
    3      1.120          42,237        1.220         46,008        1.370         51,665           1.420         53,550          1.470   55,436
    4      1.160          43,745        1.260         47,516        1.410         53,173           1.460         55,059          1.510   56,944
    5      1.200          45,254        1.300         49,025        1.450         54,682           1.500         56,567          1.550   58,453
    6      1.230          46,385        1.340         50,533        1.490         56,190           1.540         58,076          1.590   59,961
    7      1.260          47,516        1.380         52,042        1.530         57,699           1.580         59,584          1.630   61,470
    8      1.290          48,648        1.420         53,550        1.570         59,207           1.620         61,093          1.670   62,978
    9      1.320          49,779        1.460         55,059        1.610         60,715           1.660         62,601          1.710   64,487
   10      1.350          50,910        1.500         56,567        1.650         62,224           1.700         64,109          1.750   65,995
   11      1.370          51,665        1.530         57,699        1.680         63,355           1.730         65,241          1.780   67,126
   12      1.390          52,419        1.560         58,830        1.710         64,487           1.760         66,372          1.810   68,258
   13      1.410          53,173        1.590         59,961        1.740         65,618           1.790         67,503          1.840   69,389
   14      1.430          53,927        1.620         61,093        1.770         66,749           1.820         68,635          1.870   70,520
   15      1.450          54,682        1.650         62,224        1.800         67,881           1.850         69,766          1.900   71,652
   16      1.456          54,908        1.656         62,450        1.806         68,107           1.856         69,992          1.906   71,878
   17      1.462          55,134        1.662         62,676        1.812         68,333           1.862         70,219          1.912   72,104
   18      1.468          55,360        1.668         62,903        1.818         68,559           1.868         70,445          1.918   72,331
   19      1.474          55,587        1.674         63,129        1.824         68,786           1.874         70,671          1.924   72,557
   20      1.480          55,813        1.680         63,355        1.830         69,012           1.880         70,898          1.930   72,783
   21      1.486          56,039        1.686         63,581        1.836         69,238           1.886         71,124          1.936   73,009
   22      1.492          56,265        1.692         63,808        1.842         69,464           1.892         71,350          1.942   73,236
   23      1.498          56,492        1.698         64,034        1.848         69,691           1.898         71,576          1.948   73,462
   24      1.504          56,718        1.704         64,260        1.854         69,917           1.904         71,803          1.954   73,688
   25      1.510          56,944        1.710         64,487        1.860         70,143           1.910         72,029          1.960   73,914
   26                                   1.716         64,713        1.866         70,370           1.916         72,255          1.966   74,141
   27                                   1.722         64,939        1.872         70,596           1.922         72,481          1.972   74,367
   28
                     Key                1.728         65,165        1.878         70,822           1.928         72,708          1.978   74,593
   29                  BA               1.734         65,392        1.884         71,048           1.934         72,934          1.984   74,819
   30         Bachelor Degree           1.740         65,618        1.890         71,275           1.940         73,160          1.990   75,046
   31                 MA                1.745         65,806        1.895         71,463           1.945         73,349          1.995   75,234
   32          Master Degree            1.750         65,995        1.900         71,652           1.950         73,537          2.000   75,423
   33                MDIV               1.755         66,184        1.905         71,840           1.955         73,726          2.005   75,611
   34         Master in Divinity        1.760         66,372        1.910         72,029           1.960         73,914          2.010   75,800
   35              PHD-ED               1.765         66,561        1.915         72,217           1.965         74,103          2.015   75,989
   36          Dr. of Education         1.770         66,749        1.920         72,406           1.970         74,292          2.020   76,177
   37                 STM               1.775         66,938        1.925         72,595           1.975         74,480          2.025   76,366
              Master of Sacred
   38                                   1.780         67,126        1.930         72,783           1.980         74,669          2.030   76,554
                   Theology
   39                                   1.785         67,315        1.935         72,972           1.985         74,857          2.035   76,743
                     DMIN
   40         Doctor of Ministry
                                        1.790         67,503        1.940         73,160           1.990         75,046          2.040   76,931
   41                                   1.795         67,692        1.945         73,349           1.995         75,234          2.045   77,120
                  PHD/THD
   42              Doctor of            1.800         67,881        1.950         73,537           2.000         75,423          2.050   77,308
   43       Philosophy/Theology         1.805         68,069        1.955         73,726           2.005         75,611          2.055   77,497
   44                                   1.810         68,258        1.960         73,914           2.010         75,800          2.060   77,686
   45                                   1.815         68,446        1.965         74,103           2.015         75,989          2.065   77,874
ADDITIONAL EDUCATION: Congregations are encouraged to recognize levels of educational attainment in addition to those listed. A method such as the
following could be used for any educational level so identified. The amount would be added to the worker's other compensation figures.

Educational Level                                                                                       Additional Compensation
Teacher - BS or BA and seeking MS or MA                                                                 5% of BA base-year 0                $1,886
Pastor - MDIV and seeking DMIN or STM                                                                   2.5% of MDIV base-year 0            $1,178

                                                                         3
South Wisconsin District                                                                      S=Single, F=Family, H=self & kids, C=self /spouse, SS=social security, O=offset
    Suggested Salary Schedule Worksheet                                                           Degrees: BA, MA, MDIV/PHD-ED, STM/DMIN, PHD/THD
    January 1, 2013 – December 31, 2013                                                           * If parsonage/teacherage use 125% or more

        1          2         3               4                 5            6              7            8              9              11             12            13               14       15
      Name     Yrs. Exp S/F/H/C SS / O           S.E. %   Spc $Alw       Degree       % to scale Duty Adj %       Home %*             Gross salary Net Income Home allow Concordia Ins Total Value
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -

4
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                       100.0%                                          $       -     $       -     $     -      $         -       $ -
                                                                                                                         Sum Total $           -     $       -     $     -      $         -       $ -
    CPS retirement rate Single 8.70%             Multi       8.70%          CPS Med           Single       542               Family       1446           Self/kids                Self/spouse
               To begin, insert the amounts based on your plan suggestion that you wish to use for retirement rates and medical insurance monthly rates on worksheet row 28 just above this line.

               For an interactive version of this worksheet, visit our website at swd.lcms.org, and click on Resources for the Suggested Salary Guidelines 2013.
Directions for using Suggested Salary Schedule Worksheet
     1. Column One insert name.
     2. Column Two (Year exp) insert years of experience. Range runs from "0 to 45."
     3. Column Three (s/f/h/c) determines the insurance status of the individual. S= single no dependants; F=Family which includes spouse and children; H=worker and children only; C=worker and
        spouse with no dependants. If you wish to show no insurance, leave blank.
     4. Column Four (ss/o) (ss) stands for social security and (o) stands for offset retirement payment. For those rostered (commissioned or ordained) leave this column blank unless they are due an
        offset payment. Then place "o" in the column. All other employees required social security matching of the employee's payment. To account for this place "ss" in this column. If you're going to
        provide self-employment assistance in, place the % amount in the S.E.% column.
     5. Column Five (Spc $ Alw) is for special dollar allowances that are given the worker i.e. car allowances, working toward an additional degree, or any other cash payments. Type in the dollar amount
        in this column.
     6. Column Six (Degree)—These degree designations are entered into the column as found in the Salary Guideline. Please enter the degree exactly as printed and shown above the work sheet i.e.
        MDIV/PHD-ED. You do not need to capitalize the letters.
     7. Column Seven (% to scale) allows organizations to adjust the guidelines to their unique situation. So, if your group is above or below the guideline, all that is necessary is to type in the percentage
        i.e. 110 or 90.
     8. Column Eight (Duty Adj %) allows for the adjustment of salaries because of special duties, responsibility, or consideration i.e. Principle, Coaching, Senior Pastor, Director of Christian Education.

5
        Just type in the percentage that is desired—4%, 10%, etc.
     9. Column Nine (Housing %) shows what percent a rostered individual wishes to take for housing. The amount designated, which must be properly supported with actual expenses is not included in
        the state and federal income tax calculation; but is included in the self employment tax. If the individual was given a parsonage or teacherage, please enter a % i.e.125% to properly show the value
        of the house being provided and to assure that his/her retirement plans are being properly calculated. If the person owns or rents their home then the %, which needs to be substantiated, is
        entered and should normally be less than 100%. If the person is not rostered, nothing should be entered in this column.
    10. Column Eleven (Gross Salary) is an automatic calculated column that represents the value of the salary with housing. Note that a non-rostered individual who is not eligible for housing will find this
        number to be the same as (col 12) Net Income.
    11. Column Twelve (Net Income) is an automatic calculated column that includes salary, special allowances (col 5), and additional duties (col 8) less the home allowance (col 13).
    12. Column Thirteen (Home Allow) is the amount that has been identified by the worker as housing allowance and is based on the percentage from (col 9) and the salary from the Salary guideline
        table adjusted for special $ alw (col 5), % to scale (col 7) and duty adj % (col 8).
    13. Column Fourteen (Concordia Ins) is a calculated column estimating the cost for Insurance Benefits for the purpose of budgeting. This is an estimate only and the actual amount must be received
        from Worker Benefits in St. Louis. Insurance is based on Concordia Plans for the 53222 zip code. This estimate includes Health, Disability, and Retirement.
    14. Column Fifteen (Total Value) is a calculated column for the total of the net income (col 12), home allowances (col 13), and Concordia Insurance (col 14), plus any H.E.P. (col 10), and social
        security match or offset payment if appropriate.
Preschool and Daycare Salary Schedule

Following is an offering for preschools and daycares. Please note that it gives a suggested hourly wage
based on degree, years of service, position, and completion of Early Childhood certification noted as
EC-I and EC-II. The chart has been developed from extensive research done covering daycares and
preschools found mostly in the southeastern Wisconsin. Please call the district business office if you
have any questions, contribution of additional information or would like to comment on improvements.
The phone number is (414) 464-8100 or (800) 793-3678.

To use the chart, just select the correct category the worker falls in and multiply it times the number of
hours worked per week.

                             2013 Suggested Salary Schedule
                                 Pre-school & Daycare Workers
                                          Based on an hourly rate

                                                                         Bachelor Degree      Bachelor
            Enrolled in                                                   (non-Ed.) plus     Degree in
 Years of    EC-I &       EC-I & EC-II    EC-I & EC-II    EC-I & EC-II   EC-I & EC-II or 2 Elementary Ed
 Service      EC-II        No Degree       No Degree      No Degree        Year AA - EC        or EC
            Daycare &      Daycare &
                                             Lead           Lead             Lead               Lead
            Assistant       Assistant
                                            Daycare        Teacher          Teacher            Teacher
            Teachers       Teachers
    0-2       $9.03          $10.41          $10.96         $11.80           $14.01            $16.22
    3-4                      $10.70          $11.24         $12.35           $14.56            $16.78
    5-6                      $10.96          $11.52         $12.90           $15.12            $17.33
    7-8                      $11.24          $11.80         $13.45           $15.67            $17.90
   9-10                      $11.52          $12.06         $14.01           $16.22            $18.44
  11-12                      $11.80          $12.35         $14.56           $16.78            $19.00
  13-14                      $12.06          $12.63         $15.12           $17.33            $19.54
    15+                      $12.35          $12.90         $15.67           $17.90            $20.10

                                                      6
Additional Responsibilities and Compensation Information

As you determine the percentages to use for each staff person, it is important that you carefully examine
the role that each person serves in the school and congregation (association). The size of the school and
congregation (association), the scope of the extra responsibility, the amount of time necessary to
complete the tasks and the amount of experience and training are usually taken into consideration. It is
expected that the nature and scope of the task will vary from school to school and congregation
(association).

Congregations (associations) may wish to consider increasing the percentages as evaluations of the tasks
are completed.

SUGGESTED PERCENTAGES FOR ADDITIONAL RESPONSIBILITIES

SENIOR PASTORS

     0-400 Communicants                           0% of Base Salary; Year 0
     401-800 Communicants                        20% of Base Salary; Year 0
     801-1200 Communicants                       25% of Base Salary; Year 0
     Over 1200 Communicants                      30% of Base Salary; Year 0
     More than one congregation                  10% of Base Salary; Year 0

Assistant or Associate Pastors congregation or association size can be determined by dividing the total
number of communicant members by the total number of professional church workers serving.

TEACHERS
   Principal
     0-150 Students                              15% of Base Salary; Year 0
     151-300 Students                            20% of Base Salary; Year 0
     Over 300 Students                           25% of Base Salary; Year 0

     Assistant Principal
      0-150 Students                             7.5% of Base Salary; Year 0
      151-300 Students                           10% of Base Salary; Year 0
      Over 300 Students                          12.5% of Base Salary; Year 0

     Athletic Director                           4-8% of Base Salary; Year 0
     Music Director                              4-8% of Base Salary; Year 0
     Youth Director                              4-8% of Base Salary; Year 0
     Other Extracurricular                       1-5% of Base Salary; Year 0
     DCE, DCO, Lay Minister, Deaconess,          4-12% of Base Salary; Year 0 determined
      and other professional workers               by responsibilities
      (see p. 13 for illustrations)

Congregations (associations) are encouraged to adjust the various salary situations based on unique local
situations.

                                                    7
YEARS OF EXPERIENCE
If the professional church worker has entered the ministry after having served for some period of time in
another profession, the congregation (association) may wish to recognize that an entry salary into the
ministry may be inadequate compensation. In such a case, some provision is made to recognize the
experience, skills and maturity such a person brings to the ministry. For example, the congregation
(association) may consider as a base point on the proposed salary scale, a point equal to a percentage of
the years served in the previous profession. (Example: 20 years in another field of work may bring
important maturity and skills that are valued at 60% of the experience scale: therefore the starting salary
would be on the basis of twelve [12] years of experience.)

The years of experience for teachers are generally understood to be the period of time workers have
been employed in their profession, including years of service in public schools and other Lutheran
schools.

CONCORDIA PLANS
We suggest that congregations (associations) pay the entire cost of retirement and survivor plans and the
full cost of the health plan. Consult the current Concordia Plan Services booklets for further details.

SOCIAL SECURITY TAX
Ministers of the Gospel, ordained and commissioned, participate in the Social Security system as self-
employed persons and they are taxed 15.3%. It is strongly recommended that congregations
(associations) assist Ministers of the Gospel on roster with a 7.65% self-employment assistance income
add on. This is the approximate equivalent of paying the Social Security match for non-rostered
individuals, which is required by law.

HOUSING ALLOWANCE
Enclosed for your assistance, following page 15, is Section 2.100-2.900 “Housing Allowance” from the
Congregational Treasurer’s Manual.

CONTINUING EDUCATION
Each congregation (association) is encouraged to provide opportunities for continuing study by its
workers. Such provision usually includes both a time and a monetary allowance. Congregations
(associations) are encouraged to provide the entire expense if possible.

                                                     8
AUTO ALLOWANCE and BUSINESS EXPENSES
The congregation (association) may wish to make auto allowances for operating expenses and
replacement cost as well as business expenses incurred by the professional church worker on behalf of
the congregation/school as approved by the IRS. Because the laws continue to change, congregations
(associations) are encouraged to seek legal advice regarding ways for providing these allowances.

Most generally though, to minimize tax impact to the worker, a direct accountability program is the best
(an expense reporting system). This means that the congregation (association) requires that the worker
keep and submit exact expense records according to IRS regulations for monthly or bimonthly
reimbursement. Examples would be mileage, business meals and travel, required periodicals, training
fees, etc. See conventions and conferences below, which would also be included in this direct
accountability reporting.

VACATIONS
Congregations (associations) are encouraged to establish a definite policy regarding vacations, such as
the following:
                After 1 year of experience — 2 weeks
                After 5 years of experience — 3 weeks
                After 10 years of experience — 4 weeks

Vacation is based on total years of experience of a professional.

The vacation policy is intended to apply for those who are considered full-time workers. Congregational
(associational) policies regarding those who are considered less than full-time (10 or 11 months, for
example) may have to be adjusted to reflect the needs and current practices of the congregation
(association). In addition to the regular vacation, congregations also may provide pulpit relief for pastors
once a quarter.

CONVENTIONS and CONFERENCES
Expenses are to be paid by the congregation (association) for all regular synodical conventions and
conferences. Additional expenses may be paid for other optional conferences at the discretion of the
congregation (association).

LEAVE OF ABSENCE
A leave of absence is an authorized period of time off the job, with or without pay, and is granted at the
discretion of the congregation (association). It is essential that each congregation (association) adopt
appropriate policies in advance of requests. These policies should outline criteria and procedures for
dealing with leaves of absence.

                                                     9
Guest and Visiting Pastors

Reimbursement suggestions for guest and visiting pastors: These pastors spend a great quantity of
time preparing for the service(s) and Bible class studies when required. In addition these individuals are
incurring travel expenses.

Therefore, when asking a pastor to cover services or when inviting him for special services and/or
celebrations where special preparation is required, please consider the following:
          Cover all travel expenses including meals, mileage/transportation cost, and housing if
           necessary
          $150 for the first service
          $50 per service and/or Bible class study thereafter

Example: Pastor John is asked to cover the services of Anywhere Lutheran Church. Anywhere has a
Thursday night service, a Saturday night service and two Sunday services with a Bible study in between.
Pastor John lives 100 miles away from Anywhere Lutheran Church.

Thursday Night Service                                   Total mileage     Rate     Total
          Mileage round trip                                  200          $0.565 $ 113.00
          Supper (actual cost)                                                    $    5.92
          Preparation & conducting of first service                      $ 150.00 $ 150.00
                                Thursday Total                                                  $ 268.92
Saturday Night Service
          Mileage - half trip                                100           $0.565 $     56.50
          Supper (actual cost)                                                    $      6.38
          Conducting service                                             $ 50.00 $      50.00
          Motel Expense (actual cost)                                             $     49.15
                                 Saturday Total                                                 $ 162.03

Sunday Services
         Mileage - half trip                                 100         $    0.565 $ 56.50
         Breakfast (actual cost)                                                     $   5.75
         Lunch (actual cost)                                                         $   7.87
         Conducting two services                                         $50/service $ 100.00
         Conducting Bible Study                                          $ 50.00 $ 50.00
                                     Sunday Total                                               $ 220.12

*56.5 cents/mile is the most allowed by the IRS without any further substantiation other than a mileage
log, effective January 1, 2013. For current rates see the IRS website at irs.gov.

                                                    10
Examples of Computations

EXAMPLES OF PASTOR SALARIES

1) No experience, MDIV degree, congregation of 300 communicants, self-employment assistance:

                 Base salary (MDIV/PHD-ED; year 0)                                       $       46,215
       7.65% Self-employment assistance                                                  $        3,535
       50.0% Requested allowance for owned home                                          $       24,875
                 For determining housing % see Treasurer’s Manual 2.1-2.9
    Estimated gross salary for Federal and State income tax                                               $   24,875
    Total cash given which includes worker owned housing % request                                        $   49,750
    Total value equivalent of salary for self-employment tax                                              $   49,750

2) Six years experience, MDIV degree and 1/2 STM, house provided and is agreed that it should
   represent 25% of base salary (and passes IRS requirements), self-employment assistance, 600
   communicants:
                Base salary (MDIV/PHD-ED; year 0)                                          $     46,215
                MDIV/PHD-ED base salary at year 6                                          $     55,008
      25.0% Value associated with parsonage 25% of base salary
                     (25% of MDIV base at year 0 )                                         $     11,554
                     Fair rental value see Treasurer’s Manual 2.1-2.9
        2.5% Adjustment for 1/2 STM (See bottom of Salary Schedule, page 3)                $     1,155
      20.0%     Pastor of 600 communicants
                MDIV/PHD-ED; year 0 x 20% (see page 7)                                     $      9,243
                Base cash salary (MDIV/PHD-ED; year 6 ($61,716 - $10,889)                  $     53,853
      7.65% Self-employment assistance                                                     $      4,120
   Estimated gross salary for Federal and State income tax                                                $   57,972
   Total cash given plus the value of the parsonage                                                       $   69,526
   Total value equivalent of salary for self-employment tax                                               $   69,526

3) Five years experience, MDIV, associate pastor, 1224 communicants, self-employment tax assistance,
   requested housing allowance of 55%, works with deaconess:
                Base salary (MDIV/PHD-ED; year 0)                                       $     46,215
                MDIV/PHD-ED base salary at year 5                                       $     53,609
      20.0% Size of congregation - associate pastor
                (1224 comm. divided by 2 pastors & deaconess = 408, see page 7)         $      9,243
      7.65% Self-employment assistance ($50,522+$8,711)                                 $      4,808
      55.0% Requested allowance for owned home                                          $ 37,213
                     For exact amount see Treasurer’s Manual 2.1-2.9
   Estimated gross salary for Federal and State income tax                                           $        30,447
   Total cash given which includes worker owned housing % request                                    $        67,660
   Total value equivalent of salary for self-employment tax                                          $        67,660
                                                        11
EXAMPLES OF TEACHER SALARIES

1) One Year experience, BA, on Synod roster, coaching and Sunday school director, self-employment
   assistance, request 40% housing allowance:
                   Base salary (BA; year 0)                                              $ 36,972
                   Base salary (BA; year 1)                                              $ 38,451
           7.0% Extra duties-S.S.D. and coaching (BA;year 0 x [3%+4%], see page 7)       $ 2,588
          7.65% Self-employment assistance                                               $ 3,139
          40.0% Requested allowance for owned home                                       $ 17,671
                   For exact amount see Treasurer’s Manual 2.1-2.9
   Estimated gross salary for Federal and State income tax                                                $ 26,507
   Total cash given which includes worker owned housing % request                                         $ 44,179
   Total value equivalent of salary for self-employment tax                                               $ 44,179

2) Fifteen years experience, masters, on Synod roster, principal - school of 168, requested housing
   allowance 48%, self-employment assistance:
                   Base salary (MA; year 0, see page 3)                                       $ 39,872
                   Base salary (MA; year 15, see page 3)                                      $ 59,808
          20.0%    Add  for principal - school 151-300 (MA;  year 0, see page 7)              $  7,974
          7.65% Self-employment assistance                                                    $ 5,185
          48.0% Requested allowance for owned home                                            $ 35,025
                   For exact amount see Treasurer’s Manual 2.1-2.115
   Estimated gross salary for Federal and State income tax                                                $ 37,943
   Total cash given which includes worker owned housing % request                                         $ 72,968
   Total cash value equivalent of salary for self-employment                                              $ 72,968

3) Fifteen years experience, BA, 1/2 MA, music director (parish and school), non-rostered:
                   Base salary (BA; year 0, see page 3)                                    $    36,247
                   Base salary (BA; year 15, see page 3)                                   $    52,558
           5.0% Add for 1/2 MA (see bottom of Salary Schedule, page 3)                     $     1,812
           8.0% Add for music director (BA; year 0, see page 7)                            $     2,900
          7.65% Cost of Social Security match                                              $     4,381
   Estimated gross salary for Federal and State income tax                                                $ 57,270
   Total cash given as salary                                                                             $ 57,270
   Total cash value equivalent of salary with Social Security match                                       $ 61,651

4) Five years experience, BA, coach, ten-month contract, non-rostered:
                  Base salary (BA; year 0, see page 3)                                      $   36,247
                  Base salary (BA; year 5, see page 3)                                      $   43,496
           0.167 Less adjust for 10-month (BA; year 5 x 1/6th of a year)                    $   (7,264)
           5.0% Add for coach (BA; year 0 x 5%, see page 7)                                 $    1,812
          7.65% Cost of Social Security match                                               $    2,910
   Estimated gross salary for Federal and State income tax                                                $ 38,045
   Total cash given as salary                                                                             $ 38,045
   Total cash value equivalent of salary with Social Security match                                       $ 40,955

                                                       12
EXAMPLES OF DCE, DCO, LAY MINISTER, DEACONESS SALARIES

1) No experience, BA, lay minister, Synod roster, requested housing allowance 38%,
   7.65% self-employment assistance:
                  Base salary (BA; year 0)                                            $ 36,972
          4.0% Add for lay minister BA; year 0 x 4% (see page 7)                      $ 1,479
         7.65% Self-employment assistance                                             $ 2,941
         38.0% Requested allowance for owned home                                     $ 15,729
                  For exact amount see Treasurer’s Manual 2.1-2.9
   Estimated gross salary for Federal and State income tax                                         $ 25,663
   Total cash given which includes worker owned housing % request                                  $ 41,392
   Total value equivalent of salary for self-employment tax                                        $ 41,392

2) Thirteen years experience, 1/2 masters, deaconess, on Synod roster, requested housing
   allowance 32%, 7.65% self-employment assistance:
                  Base salary (BA; year 0)                                             $ 36,972
                  Base salary (BA; year 13)                                            $ 52,131
          5.0% Add for 1/2 MA (see bottom of Salary Schedule, page 3)                  $ 1,849
          7.0% Add for deaconess BA; year 0 x 7% (see page 7)                          $ 2,588
         7.65% Self-employment tax assistance                                          $ 4,327
         32.0% Requested allowance for owned home                                       $ 19,486
                  For exact amount see Treasurer’s Manual 2.1-2.9
   Estimated gross salary for Federal and State income tax                                         $ 41,409
   Total cash given which includes worker owned housing % request                                  $ 60,895
   Total value equivalent of salary for self-employment tax                                        $ 60,895

3) Twenty-seven years experience, MA, DCE and youth director - additional responsibilities, on
   Synod roster, teacherage provided at 25% of base, self-employment tax assistance:
                  Base salary (MA; year 0)                                            $ 40,669
                  Base salary (MA; year 27)                                           $ 63,666
         25.0%    Teacherage value (25% x year 0)                                     $ 10,167
                  For exact amount see Treasurer’s Manual 2.1-2.9
    Adjusted base salary (MA; year 27)                                                $ 53,499
           6.0% Add for DCE (MA; year 0 x 6%,) (see page 7)                           $ 2,440
           8.0% Add for youth director (MA; year 0 x 8%) (see page 7)                 $ 3,254
          7.65% Self-employment assistance                                            $ 5,306
    Estimated gross salary for Federal and State income tax                                        $ 64,498
    Total cash given plus the value of the teacherage                                              $ 74,666
    Total value equivalent of salary for self-employment tax                                       $ 74,666

                                                     13
Worksheet for Computing Compensation for
          Pastors, Teachers, and Other Professional Church Workers

_____________________________________________
Worker’s name

_________________          ____________________________________________
Years of experience        Highest degree

Base salary at year 0 ________________

A.   Salary determined by
     years of experience and degrees                              $ _______________

B.   Compensation for additional responsibilities based on
     guidelines for pastors/teachers/other workers                $ _______________

C.   Reduction based on (see Treasurer’s Manual 2.1-2.115)
     Parsonage / teacherage value if appropriate (minus)          $ _______________

D.   Reduction for 10-month position (minus)                      $ _______________

E.   Other cash compensation — list:

          Additional education           $ ________________
          Home equity program           $ ________________
          Self-employment allowance      $ ________________
          ____________________           $ ________________
          (Other)
          Direct accountability of business expenses
               and reimbursement (circle one) Yes      No

                       Total other cash compensation              $ _______________
F.   TOTAL salary cash payment                                    $ _______________

G.   Value of benefit package (Concordia Plans, TSA match, etc)   $ _______________

H.   Value of housing allowance (Line C)                          $ _______________

     TOTAL SALARY and BENEFIT PACKAGE (line F, G, H)              $ _______________

                                                  14
Worker Salary Benefit Information

__________________________________
Name

____________________
Fiscal Year

The following is shared with you so that you will have complete information about your salary
and benefits. Your salary adjustments will begin on ___________. Your check on ___________ will
reflect the change. If you have any questions don’t hesitate to contact _______________________
________________________________________________.

1. Salary (includes years of experience and education level)           $ _______________

2. Compensation for additional responsibilities                        $ _______________

3. Value for parsonage/teacherage provided                             $ _______________

4. Other cash compensation
      ____________________________    $_________________
      ____________________________    $_________________
      ____________________________    $_________________

                          Total other compensation                     $ _______________

5. Total cash salary (Line 1+2-3+4 total other)                        $ _______________

6. Current cash salary                                                 $ _______________

7. Increase %________ (line 5 - line 6 / line 6)                       $ _______________

8. Value of benefits not included above (Concordia Plans, vacation, etc.) $ _______________

9. Value of parsonage/teacherage (Line 3)                              $ _______________

     Total salary and benefit package: (Lines 5+8+9)                   $ _______________

                                                     15
Chapter 2: Housing Allowance and Parsonage

                                                          Introduction...................................................100

                                                          ELIGIBILITY...........................................................200

                                                          HOUSING ALLOWANCE.......................................300
                                                            Housing Allowance Income
                                                                  Tax Aspects..............................................310
                                                            Tax-free Limits..................................................320
                                                            The Designated Amount...................................321
                                                            Use of Housing Allowance................................322
                                                            Fair Rental Value...............................................323
                                                            “One” Home....................................................330
                                                            “Debt-Free” Home...........................................340
                                                            Home Equity or Second Mortgage Loans..........350
                                                            Home Loan Between Church and Minister........360
                                                            Itemized Deductions.........................................370

                                                          parsonage.........................................................500
                                                            Parsonage Income Tax Aspects.........................510

                                                          substantiation and
                                                          disclosure.........................................................600

                                                          self-employment tax.....................................700

                                                          reporting requirements...............................800

                                                          sample housing allowance
                                                          resolutions......................................................900

Changes in tax law may affect accuracy of text. Copyrighted. All rights reserved. 					                            10/12 • Page 2-1
2.100:                                                             2.300:
Introduction                                                       Housing Allowance
The compensation package of an LCMS minister of                    A housing allowance neither increases nor decreases the
religion—ordained or commissioned may include a                    cost of the worker to the congregation. It is a part of
parsonage (that is, the use of church-owned housing), or           the worker’s compensation that has been designated as
a housing allowance, or both.                                      housing allowance.
      Concerning their treatment for federal income tax                 Housing allowance may be designated whether the
purposes, the Internal Revenue Code Section 107 states             minister lives in a home owned by the congregation, a
the following:                                                     rental dwelling, or owns his own home. The amount of
     In the case of a minister of the Gospel, gross income         allowance may vary with these circumstances.
does not include:                                                       If the furnished dwelling is owned by the congre-
1. The rental value of a home furnished to him/her as              gation, but the minister pays the cost of the utilities or
    part of his/her compensation; or                               other expenses connected with the home, the employer
2. The rental allowance paid to him/her to rent or                 may designate part of the minister’s compensation as
    provide a home (within certain limits).                        “parsonage allowance” to cover the cost of the utilities
     Granted only to ministers (i.e., licensed, ordained,          and other dwelling expenses.
or commissioned in the exercise of their ministry), this                Where an employer does not furnish a parsonage
favorable income tax relief dates from the earliest days           and the minister rents or provides his or her own home,
of the United States and was a consideration given by              the employer may designate an even greater part of
Congress in exchange for the expectation that the clergy           his or her compensation as “housing allowance” which
would provide sanctuary for the “deserving poor”—                  will be used for expenses related to home ownership,
widows and orphans.                                                including furnishings and utilities.
     For this publication, references to “housing
allowance” will include all allowances paid to a worker            2.310:
for providing a home. This includes housing allowance,             Housing Allowance Income Tax Aspects
utilities allowance and furnishings allowance. The                 To the extent that a designated housing allowance is
two terms, “housing allowance” and “parsonage,”                    used to rent or provide a home and does not exceed the
are different and distinctive. They may be provided                furnished home’s fair rental value plus utilities, it is not
separately or in combination. Although neither is subject          subject to federal income tax. Read 2.320 for a clearer
to income tax, they are subject to self-employment tax.            understanding of this statement.

2.200:                                                             2.320:
                                                                   Tax-free Limits
Eligibility                                                        The housing allowance income tax exclusion is limited
Pastors, certified teachers, DCEs, DCOs, deaconesses,              to the least of the three following amounts:
parish assistants, certified lay ministers, directors of           1. Amount of the minister’s compensation
parish music and directors of family life ministry who                 designated as housing allowance, approved by
are listed on the Synod’s roster and are in ministry as de-            official action taken by the governing body of the
scribed in paragraph 1.140 are eligible to be compensat-               employer, and evidenced in the official minutes of
ed with a housing allowance. Some or all of the housing                the governing body.
allowance may be income tax free. These same workers               2. Amount expended or “used” by the minister
are also eligible to be compensated with a parsonage                   to provide a home during the year and properly
and utilities paid for by the congregation. The fair rental            substantiated.
value of the parsonage and paid-for utilities are entirely         3. The fair rental value of the home (including
income tax-free as provided under Internal Revenue                     garage, etc.), furnished, plus utilities.
Code Sec. 107. A minister’s widow is not eligible for
this tax-free benefit. For retired ministers, see 1.425. As            A minister cannot exclude from taxable income any
stated previously, either form of housing provided by the          amount of the designated allowance that exceeds the
congregation is subject to self-employment tax.                    conditions in those “least of” rules outlined here. The
                                                                   excess taxable housing allowance must be reported by
                                                                   the minister on his or her IRS Form 1040, line 7.
                                                                       The sections that follow provide further details
                                                                   concerning how each of these conditions may be
                                                                   separately calculated.

Page 2-2 • 10/12   				                                       Changes in tax law may affect accuracy of text. Copyrighted. All rights reserved.
2.321:
The Designated Amount                                                 MINISTER’S ESTIMATE OF EXPENSE
IRS assigns the minister’s employer with the task of
designating how much of his or her salary is believed will      ITEM	AMOUNT
be used in providing a home. It must be “reasonable”            1. Rent on home                              $__________
in amount. In other words, the amount cannot be more            2. Garage rental                              __________
than reasonable pay for a minister’s services. Nor can          3. Down payment; legal,
any portion of the minister’s salary being contributed              loan and title fees; and
to a 403(b) TSA also (concurrently) be designated as                real estate commission
housing allowance.                                                  on purchase of home                       __________
     The designation of the housing allowance must be           4. Mortgage payments
pursuant to official action taken in advance of payment             (principal and interest)                  __________
of the allowance. The designation should be in writing          5. Real estate taxes
to avoid any confusion about its proof, preferably                  and assessments on home                   __________
evidenced in the minutes of the appropriate governing           6. Property insurance
body of the employer (e.g., board of directors, church              (homeowner’s or renter’s)                 __________
council, voters’ assembly, etc.). If not done by adoption       7. Utilities:
of a formal resolution, designating the amount as a                    Gas                                    __________
budget line item may be sufficiently “official.”                       Electricity                            __________
     The designation cannot be made retroactively. This                Water + sewer                          __________
is extremely important, as ministers have been required                Heat                                   __________
to pay taxes and penalties on housing allowances if they               Telephone (basic service)              __________
could not show proper pre-authorization.                               Trash pick-up, Environmental fees      __________
     The designation may take the form of a specific                   Storm drainage                         __________
dollar amount (generally based upon the minister’s              8. Furnishing and appliances
estimate of the amount he or she believes will reasonably           (purchase and repair)                     __________
be excludible) or a percent of total compensation. There        9. Structural repairs and
is no suggested percentage by the Synod or a limitation             remodeling                                __________
based on a percentage of compensation by the IRS.               10. Lawn care and landscaping                 __________
     It may be amended from time to time as necessary,          11. Maintenance items
but each amendment must be formally adopted by                      (household cleansers,
the employer and can only be effective for payments                 light bulbs, pest control)                __________
made after adoption by the appropriate body or voters’          12. Other allowable expenses
assembly.                                                           (specify)                                 __________
                                                                13. Home Owner’s Association dues             __________
2.322:						                                                           TOTAL                                 $__________
Use of Housing Allowance
To the extent that the designated housing allowance             2.323:
amount is used to rent or provide a home and does not           Fair Rental Value
exceed the furnished home’s fair rental value plus utilities,   Currently, IRS has no written procedures concerning the
it may be excluded by the minister of religion—ordained         method or frequency for determining this value. In its
or commissioned from income tax. In determining the             Audit Technique Guide for Ministers, the IRS tells its agents
amount “used” to rent or provide a home, a minister             that determining the fair rental value of a parsonage
may take into account all of his or her payments for            “is a question of all facts and circumstances based on
repairs, real estate taxes, mortgage payments (both             the local market . . .” It also suggests the importance of
principal and interest), insurance, lawn care, utilities,       “documentary evidence.”
furniture, remodeling and other home improvements.                   Some appraisal experts suggest approximating the
     The following worksheet has been designed to as-           annual rental value of a home by taking 1 percent of the
sist a minister in estimating his or her total amount of        home’s fair market value and multiplying the product
housing expenses. Its inclusion in this publication does        by 12. But this calculation doesn’t always yield accurate
not imply that the minister must disclose details of this       results—and it doesn’t consider the rental value of a
kind to the governing board that makes the housing              furnished home.
allowance designation. The amount a minister of religion             The fair rental value of a home is generally the
requests of his or her congregation to pre-designate as         amount that houses of comparable size and quality in
housing allowance should consider all the housing al-           the same vicinity would rent for in an “arm’s-length”
lowance limitations (for a complete listing, see 2.320).        transaction. It’s probably a good idea to contact a local
                                                                real-estate agent for help. Real estate agents often
                                                                manage rental properties and know their local markets.

Changes in tax law may affect accuracy of text. Copyrighted. All rights reserved. 					                      10/12 • Page 2-3
As an alternative, look for relevant classified ads in the        designated for housing allowance and home’s fair
newspaper.                                                        rental value, then the exclusion is strictly limited to the
    And, don’t forget the home’s furnishings. IRS                 homeowner’s fewer expenses.
hasn’t provided guidance for determining these rental
values, either. However, it may be reasonable to contact          2.350:
furniture-rental agencies for them. Such companies can            Home Equity or Second Mortgage Loans
usually quote rates by-the-room.                                  As a homeowner, a minister of religion–ordained or
    Finally, document how, when and with whose                    commissioned may at some time take a second mort-
help you arrived at a fair rental value-and keep that             gage or home equity loan on his or her property. The
information for future reference. This amount should be           purpose and use of this borrowed money will determine
reviewed regularly and reasonably adjusted for changes.           whether or not the payments can be considered “uses”
In complicated situations, seek the advice of a qualified         of his or her housing allowance. If the borrowed funds
tax professional.                                                 were used to pay for home repairs, maintenance, or
                                                                  furnishings, payments (including principal and interest)
2.330:							                                                     will be considered a use of housing allowance. If they
“One” Home                                                        were partially used for another purpose (i.e., credit card
There is another long-standing restriction IRS has                debt, personal loans, education, etc.) you must prorate
imposed on the excludible portion of a minister’s                 payments between housing and personal expenses.
compensation received for housing, confirmed by the
court. A minister of religion—ordained or commissioned            2.360:
can only exclude from gross income his or her housing             Home Loan Between Church and Minister
allowance used in providing only “one” home.                      Congregations may elect to assist a minister with
Generally, that home was the primary residence.                   the purchase of a home by means of a direct loan.
                                                                  Forgiveness of debt or interest free loans could result in
                                                                  additional income for the worker (see 1.310).
2.340:						                                                           The congregation is required to report the interest
“Debt-Free” Home                                                  payments made by the minister on Form 1098 (Exhibit
As a matter of interest to ministers of religion--ordained        2). The Form 1098 must also be submitted to the IRS
or commissioned who own their home debt-free, they                with a Form 1096 (see Exhibit 7-R). The box for Form
are usually not able to exclude as much of a housing              1098 must be checked on the Form 1096.
allowance as those who own their homes subject to a                    Principal and interest payments made by the
debt. The reason, of course, is that they are not making          minister may be a qualified use of housing allowance as
principal and interest mortgage payments. Even though             provided in this chapter.
the fair rental value of the home may have appreciated,                A home or former parsonage being purchased by
the “least of” rule limiting the tax-free portion of              a minister is usually not exempt from property tax.
housing allowance (see 2.320) still applies. So when              Check the applicable laws in your state.
expenses on a debt-free home drop below the amount

                                                     Exhibit 2

Page 2-4 • 10/12   				                                      Changes in tax law may affect accuracy of text. Copyrighted. All rights reserved.
2.370: 					                                                    minister document when and how he/she determined
Itemized Deductions                                             his or her home’s annual fair rental value, furnished.
Although mortgage interest and real estate taxes are            If the congregation owns the dwelling, the employer
generally a housing allowance use that is excluded from         and minister should openly discuss and agree on
the minister’s gross income for income tax purposes,            determining that amount. See how the amount might
he or she may also claim deductions for the same if             be determined at 2.323.
itemizing them on his or her tax return. This example                As another practical matter, the minister should
of “double dipping” is a matter of law and another              also ask for and keep a copy of his or her housing
special tax benefit to ministers of religion–ordained or        allowance designation. The designation may appear in
commissioned.                                                   the minister’s call documents, employment contract,
                                                                the church minutes, the church budget, or any other
                                                                document indicating official action. Having a copy in-
                                                                hand helps to reassure the minister that this action was
2.500:                                                          actually taken by his or her employer.
                                                                     If the IRS suspects that a taxpayer has omitted a
Parsonage                                                       substantial (25 percent or more) amount of income on
Where an employer furnishes a minister of religion–
                                                                his or her tax return, the Service has up to six years to
ordained or commissioned with a dwelling, a
                                                                audit and assess an additional tax. However, an item
parsonage, the fair rental value of the housing,
                                                                is not considered omitted if its existence has been
including any employer-paid utilities, is not part of
                                                                disclosed in the return, or in a statement attached to the
the taxable compensation for income tax purposes.
                                                                return, in a manner that apprises the IRS of the nature
The same applies to the furniture, garage, repairs and
                                                                and amount of the item. Since a minister’s housing
maintenance, if furnished by the employer. (Note: The
                                                                allowance (or annual fair rental value of a parsonage) is
home’s fair rental value and utility expenses paid for by the
                                                                likely to be a substantial portion of a minister’s income, it
employer are included in income for self-employment tax
                                                                is recommended that he or she disclose having received
computation.)
                                                                the earnings and explain its excludible nature. A Form
                                                                W-2 showing the nature of the income and excludible
2.510: 				                                                     amount in Box 14 will probably be sufficient in meeting
Parsonage Income Tax Aspects                                    this disclosure requirement and thus avoid the six-year
Unlike with housing allowance, there are no limitations         statute of limitations. However, some employers may
with respect to the employer-provided housing that              not show that information in this manner. In that case,
is excludible from the minister’s gross income for              the minister should consider preparing a statement
income tax purposes. Plainly speaking, 100 percent of a         with this information himself and attach it to the return.
parsonage’s value is income tax-free. However, IRS could        Otherwise, he or she should keep all housing allowance
assess the congregation’s officers and the minister both        and/or parsonage information related to a tax return for
with severe monetary penalties (intermediate sanctions)         six years after the return’s due date.
if the value of the housing in combination with his or her
salary is highly unreasonable compensation for his or her
services.
                                                                2.700:
                                                                Self-Employment Tax
2.600:                                                          Although neither the minister’s excludible housing allow-
                                                                ance or employer-provided housing is subject to income
Substantiation                                                  tax, they are subject to self-employment tax. For this
                                                                reason, it’s important to communicate these amounts to
and Disclosure                                                  the minister. The section that follows describes how this
Whether a minister of religion–ordained or commis-
                                                                information should be reported. The reported value has
sioned is provided with a parsonage or receives a hous-
                                                                no relationship to the 25 percent allocation for a person
ing allowance as part of his or her earnings, he or she
                                                                living in church-supplied housing used by Concordia
must understand there are certain substantiation and
                                                                Plan Services for benefit computation. In order to report
disclosure requirements that must be followed to ensure
                                                                an accurate amount of employer-furnished housing, it is
their income tax benefit.
                                                                important to have the home’s fair rental value assessed
    In order to exclude any amount of the housing
                                                                (see 2.323). Also, keep a record of any utility payments
allowance, proof of housing-related expenditures in the
                                                                made with respect to the property. IRS expects that the
form of receipts or cancelled checks should be retained
                                                                amount reported is a figure “agreed on” by the church
by the minister. IRS does not require this information to
                                                                and minister and that documentary evidence in this
be shared with the employer.
                                                                regard exists.
    In addition to substantiating how the housing
allowance was used, it is also recommended that the

Changes in tax law may affect accuracy of text. Copyrighted. All rights reserved. 					                      10/12 • Page 2-5
2.800:                                                            congregation thoroughly understands the rules ap-
                                                                  plicable to designating one before its adoption (refer
Reporting Requirements                                            to 2.321, The Designated Amount). Although each is
There are various ways the housing allowance of the               written in “standing” form, the congregation could
minister of religion–ordained or commissioned may be              adopt one annually to reflect revised requests for hous-
reported for tax purposes. Two common ways are listed             ing allowance amounts by the minister. Congregations
as follows:                                                       should recognize the needed amounts for housing
1. “Estimated Exclusion Method”                                   allowance will vary greatly among their eligible workers.
   Generally the most commonly used method by                     Therefore, sample resolutions 1, 3 and 4 will assure the
   congregations of The Lutheran Church—Missouri                  most favorable tax treatment for their workers.
   Synod, it requires the least amount of congregational
   involvement in determining what portion of the                                         Sample 1
   minister’s designated housing allowance is actually                All Employed Ministers—Stated Dollar Amount
   excludible from federal income tax. Before the begin-                                RESOLUTION
   ning of the year, the minister presents the governing          RESOLVED, that (name of congregation), authorizes and
   body with an estimated amount of his or her housing            establishes the following individual(s) housing allowance
   allowance needs (refer to 2.322 for an understand-             for the year 20xx:
   ing how a minister might estimate this amount). The            Name_________________________ Amount___________
   church board adopts a resolution designating the               Name_________________________ Amount___________
   housing allowance based on that estimate. At year-             The housing allowance will be paid from ____________,
   end, the treasurer prepares the W-2 by reporting the           20xx, to December 31, 20xx.
   net salary (gross salary less housing allowance) in Box
   1 and the housing allowance in Box 14 or on a sepa-                                   Sample 2
   rate statement. The minister then considers the “least              All Employed Ministers—Stated Percentage
   of” rule shown in 2.320 and reports any unused                                       RESOLUTION
   housing allowance on his or her Form 1040, line 7.             RESOLVED, that (name of congregation), as a standing
                                                                  resolution to remain in force and effect until such
2. Before the beginning of the year, the governing body           time as amended or revoked, hereby authorizes and
   may designate the housing allowance as a reasonable            establishes a housing allowance for each ordained or
   stated percentage of compensation in lieu of the               commissioned minister of religion at any time serving it
   minister’s estimation. At year-end, the treasurer              in an amount each year equal to _________ percent of
   tests to ensure the amount of gross salary being               that person’s gross annual compensation. (Congregation
   excluded as housing allowance on the minister’s                should designate what is included in gross annual
   wage statement is consistent with the congregation’s           compensation.)
   designation (gross salary multiplied by the stated
   percent). The treasurer and minister then follow the                                   Sample 3
   same IRS-reporting procedures as described under                     Individual Minister—Stated Dollar Amount
   method 1.                                                                             RESOLUTION
     According to IRS Publication 15-A, the rental value          RESOLVED, that (name of congregation), as a standing
of housing provided to a minister may be reported to              resolution to remain in force and effect until such time
him or her on a separate statement or in box 14 on                as amended or revoked, hereby authorizes and estab-
Form W-2. In this regard, do not mistakenly label this            lishes a housing allowance for (individual’s name) at any
amount as a “housing allowance” as that may cause the             time serving it in the amount of $__________ per year.
minister to improperly calculate his or her income tax
liability. Report only the amount agreed upon between                                    Sample 4
you and the minister. See 2.323 for guidance concern-                     Individual Minister—Stated Percentage
ing how that amount might be determined. The report-                                    RESOLUTION
ed value has no relationship to the 25 percent allocation         RESOLVED, that (name of congregation), as a standing
for a person living in church-supplied housing used by            resolution to remain in force and effect until such
Concordia Plan Services for benefit computation.                  time as amended or revoked, hereby authorizes and
                                                                  establishes a housing allowance for (individual’s
                                                                  name) for the duration of service in an amount each
2.900:                                                            year equal to _______ percent of that person’s annual
                                                                  compensation.
Sample Housing
Allowance Resolutions
This section contains sample resolutions that may be
used by a congregation in setting the housing allow-
ance for minister employees. However, make sure the

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