What are the most common housing allowance mistakes pastors make?

These are the errors tax professionals see over and over:

• No written designation. A verbal agreement or informal understanding with the board is not a designation. No official advance action, no exclusion.
• Designating too late. The allowance only covers payments made after the designation. A January-to-March gap with no designation means those months' pay cannot be excluded.
• Designating too little. You can never exclude more than the designated amount, even if you spent more. Since excess is easy to report, it is smarter to designate generously and true-up at tax time.
• Forgetting the fair rental value cap. Designating $40,000 on a home that would rent furnished-plus-utilities for $24,000 wastes the difference.
• Not reporting excess allowance. Unspent designation must go on Form 1040 line 1h; skipping this is underreporting income.
• Forgetting self-employment tax. Many pastors are shocked by a large SECA bill because no one withheld anything on the allowance. Make quarterly estimated payments.
• Church payroll errors. Including the allowance in W-2 Box 1, or issuing a 1099 for it.
• No receipts. Without documentation, actual expenses cannot be proven in an audit.
• Assuming eligibility. Non-ministerial staff cannot receive a housing allowance, and churches that hand them out anyway create liability for everyone.
• Missing the retirement opportunity by rolling church retirement money into an IRA, which forfeits the ability to receive those distributions as housing allowance.