Use this article to set up a minister's housing allowance in Gusto and understand how taxes apply. This guide is for churches, religious organizations, and payroll admins who pay ministers or clergy a housing allowance.
Payroll admins and bookkeepers for churches or religious organizations
Ministers and clergy who receive a housing allowance
Federal income tax: A qualified housing allowance is not subject to federal income tax when you meet IRS rules (see IRS Pub 517). Gusto will not calculate federal income tax on minister's housing allowance.
Self-Employment Tax (SECA): Housing allowance is included in the calculation for Self-Employment Tax (Social Security and Medicare). Ministers are responsible for paying these taxes themselves. Therefore, Gusto will not calculate or withhold these taxes on minister's housing allowance.
Reporting: Gusto totals the housing allowance and shows it in Box 14 on the Form W-2 at year end.
Documentation: Keep written designation of the allowance before you pay it, and keep records of actual eligible housing costs.
Limits: The tax-free portion is generally limited to the lowest of: the allowance designated, actual eligible housing expenses, or the home’s fair rental value (including utilities). See IRS Pub 517 for rules.
Most states follow federal rules. The following tax types do tax minister's housing allowances:
Colorado: Paid Family and Medical Leave (PFML)
Minnesota: Paid Family and Medical Leave (PFML)
Oregon: State Unemployment Insurance (SUTA) and PFML
Pennsylvania: State Income Tax
Washington: PFML and WA Cares (Long-Term Care)
Local taxes:
KY: Lexington-Fayette OLF/OLTS
WV: Charleston City Service Fee; Morgantown City User Fee; Parkersburg City Service Fee; Wheeling City Service Fee
Important: These lists can change. Confirm current state and local tax rules before you run payroll.
Related definitions:
Minister's housing allowance: A church-designated part of a minister’s pay used for housing costs.
SECA: Self-Employment Contributions Act taxes (Social Security and Medicare) that ministers pay on their own returns.
PFML: Paid Family and Medical Leave tax (state programs vary).
Box 14: An informational box on the W-2 where Gusto reports the total minister's housing allowance.
SUTA: State Unemployment Insurance tax.
Use the official custom earning code: Minister's housing allowance for most cases. This code supports correct W-2 reporting and state program handling.
Important
Tax treatment for ministers can be complex and church-specific. Speak with a qualified tax advisor for guidance that fits your church’s facts.
If your tax advisor instructs you to treat the minister's housing allowance as a fully non-taxable reimbursement, you can set it up in Gusto with the “Housing allowance” reimbursement code (recurring or one-time).
Have a written board or church designation that names the minister and the allowance amount.
Confirm whether your minister is exempt from Social Security and Medicare under IRS rules.
Decide if the allowance will recur each pay period and for how much.
Customers who were onboarded as a church or religious organization can follow the steps below to add the custom earning type.
To add a minister's housing allowance earning and apply it to a minister:
Go to Pay.
Click Settings (top-right)
Go to Custom earnings.
Click Add custom earning
Choose Minister housing allowance from the dropdown.
Enter the label you want to give the earning and click Save. This is the name that will show in payroll and on paystubs.
Go to People → select the minister’s profile.
Go to Pay.
Next to Additional earnings, click Add.
Choose your Minister's housing allowance earning with the name you gave it → enter the recurring amount you want included each pay period → click Save.
Gusto includes this amount each pay period and tracks the annual total for W-2 Box 14.
At year end, Gusto automatically shows the total Minister's Housing Allowance in Box 14 on the Form W-2. Federal taxable wages in Box 1 exclude qualified housing allowance. SECA still applies.
Note: Ministers are responsible for SECA (reported on the minister’s individual tax return). Churches do not withhold or pay SECA for ministers.
This guide explains how to retroactively add ministers' housing allowance errors from past pay periods. Follow the steps that match your situation.
You paid the minister housing allowance, but it does not appear anywhere in Gusto.
What to do:
Follow the steps above to add minister's housing allowance as a custom earning.
For prior quarters: Use the non-Gusto payroll tool to add the missing minister's housing allowance.
Tap to enter earnings and hours.
Add the missing minister's housing allowance amount under the Additional earnings (AE) section.
For the current quarter: Use an off-cycle payroll to add the missing minister's housing allowance under "Other Earnings."
You reported the minister's housing allowance as a fully non-taxable reimbursement instead of using the correct custom earning type.
What to do:
If you added the non-taxable reimbursement as a recurring reimbursement, use the steps in this article to delete the recurring reimbursement.
Follow the steps above to add minister's housing allowance as a custom earning.
Check if you need to fix past reporting: You only need to correct past quarters if the minister works in one of these states where minister's housing is taxable:
Colorado
Minnesota
Oregon
Pennsylvania
Washington
If the minister works in one of these states, follow these steps:
For prior quarters: Use the non-Gusto payroll tool to add the missing minister's housing allowance.
Tap to enter earnings and hours.
Add the missing minister's housing allowance amount under the Additional earnings (AE) section.
For the current quarter: Use an off-cycle payroll to add the missing minister's housing allowance under "Other Earnings."
After December 4, 2025: Update your 2025 special compensation for W-2s. On December 4th, you'll get a task on your Home page to review 2025 special compensation for W-2s. Remove the amount from the "Housing allowance" column and save your changes
Important: Before December 4th, if you update the special compensation in your account, it'll apply to the prior tax year. Make sure that you're editing special compensation for the current tax year
This prevents the housing allowance from appearing twice in Box 14.
You reported the minister's housing allowance as regular wages instead of using the correct earning type.
What to do:
Follow the steps above to add minister's housing allowance as a custom earning.
Follow these instructions to reverse each payroll for the affected minister(s) where you incorrectly added minister's housing as regular wages.
Use the non-Gusto payroll tool to re-add the reversed payrolls. Remove the minister's housing allowance from regular wages and add it in the new custom earning field.
To contact us, sign in to your Gusto account and click the help icon in the top-right corner of the page.
Some ministers qualify for exemption from Social Security and Medicare under IRS rules.
Review IRS Topic 417 – Earnings for Clergy and IRS Publication 517 to confirm eligibility and filing steps.
If exempt:
Record the exemption in your HR files.
In Gusto, add the exemption for the minister.
Important: Exemption rules have strict timing and eligibility requirements. Confirm with a tax advisor.
Gusto connects to Aplos Accounting to track payroll and tax payments for churches.
We support W-2 reporting and church payroll needs, including pastor housing allowances and tax exemptions.
Q: Is the housing allowance subject to federal income tax?
A: A qualified housing allowance is generally not subject to federal income tax when you meet IRS rules. See IRS Publication 517.
Q: Is the housing allowance subject to Social Security and Medicare?
A: Yes. Housing allowance is included in SECA for ministers. Ministers pay these taxes on their personal return. Churches do not withhold SECA.
Q: Does Gusto put the housing allowance in Box 1 on the W-2?
A: No. Gusto excludes qualified housing allowance from Box 1 and reports the total in Box 14. SECA still applies.
Q: What if the allowance is more than actual housing costs or fair rental value?
A: The tax-free portion is limited. Amounts above the limit are taxable as income. Keep records of actual expenses and fair rental value.
Q: Which states or locals tax housing allowance?
A: Colorado PFML; Minnesota PFML; Oregon SUTA and PFML; Pennsylvania state income tax; Washington PFML and WA Cares; plus local taxes in KY Lexington-Fayette (OLF/OLTS) and WV (Charleston, Morgantown, Parkersburg, Wheeling). Confirm current rules before payroll.
Q: Can I pay a one-time housing allowance for a missed period?
A: Yes. Use an off-cycle payroll with the Minister's housing allowance earning you set up and document the covered dates.
Q: Does this apply to a parsonage provided by the church?
A: Parsonage and cash housing allowance have different rules, but both can be tax-favored under IRS Pub 517. Confirm treatment with a tax advisor.