Many refer to the special tax privileges available to clergy under the Internal Revenue Code as the minister national tax. Technically, that's not really what it is. In fact, it's nothing more than the special rules and procedures by which ministry personnel file their tax returns, which is what most of us do every year.

It's often called the minister national tax because, admittedly, it's a bit different from how non-ministers report their taxable income. So, in essence, anything that is different from what the rest of us face must have a name or title of its own.

Let's take a brief look at the minister national tax, as it were, to understand a bit more about the special tax privileges available to clergy. First, ordained clergy are entitled to have a parsonage or housing allowance designation by their church.

If all the requirements below are met, the minister is entitled to exclude the amount actually used for the provision of a home, from ordinary income. Please note that this is not a Deduction. A deduction would not render as low a tax bill as an exclusion will.

In other words, under this part of the "minister national tax," so to speak, a designated housing allowance or parsonage is not even considered in the mix when calculating the initial tax liability. Therefore, since a smaller amount of income is available to tax, the tax liability is typically much smaller than in the case of a deduction.

Here are some of the requirements a housing allowance or parsonage must meet to be legitimate:

1. It should be in writing,
2. It should be designated in a manner that complies with the regulations (i.e. employment contract, board resolution, church budget, etc.)
3. It should be designated by the same group that approves compensation,
4. It should be designated in advance,
5. It should clearly distinguish a specific amount of the minister's compensation as a parsonage or housing allowance, and
6. It should not constitute unreasonable compensation

As with all things, there are additional considerations you should understand well and closely follow. If you are in the process of starting a church, this is something you must understand or risk running afoul of the IRS guidelines. For the gold standard in use today throughout the country by churches in the know, check out an amazing church-starting resource authored by devoted Christian and church law expert, Abe Hernandez, Esq. It's called Building On Faith: Everything You Need To Know About Starting Your Own Church.