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Question 13 — Includible Compensation

Q: My client is a pastor, and is receiving total income of $87,000, $42,000 of which has been designated as housing allowance. Since the church wants to make non-elective contributions to the maximum allowable limit on his behalf, can I assume that the church can contribute $52,000 for him in 2014? 

A: No. Unfortunately, the $42,000 which has been designated for housing allowance cannot be included in his includible compensation since it is a non-taxable benefit under Internal Revenue Code Section 107. Thus, he has $45,000 ($87,000 minus $42,000) in includible compensation, which means that the church can contribute only $45,000 on his behalf.