NOT taking the housing allowance

I noticed today, while preparing my taxes, that it's actually advantageous for me NOT to take any housing allowance this year, but to instead report all of it as income. This is a result of several factors:

1) My wife didn't work outside the home at any point during the year, so our income was solely that which we received from the church. And it wasn't much.

2) This caused us to have 0 tax liability (other than social security tax), with or without counting the housing allowance as income.

3) We now have 4 children as dependents (3 biological and 1 foster).

4) Because of the way the Child Tax Credit works, unless we made a certain amount of "earned income," the child tax credit is much lower than it would otherwise be.

5) Therefore, after crunching the numbers both ways, it makes more sense to count the reported housing allowance as income rather than as housing allowance.

So here's my question: even though the church reported to the IRS a considerable portion of my salary as housing allowance, can I simply count it all as income instead? I know we're supposed to report any unused housing allowance as income, but can I just count it all as income?

 

I'll call Guidestone, and the IRS both (they also have a helpful hotline). Hadn't thought of that until you mentioned it.

I understand the tax code pretty well. I had someone familiar with clergy taxes do my taxes for the first couple years. Then I did them myself and had someone basically double check them, and they were right on. So then I started doing them myself, and have been since, and haven't had any problems. The only thing that's different this year is that my wife stopped working because we now have a foster daughter who needs a lot of attention.

I know that I'm not hiding income, that's not really the issue. The W-2 shows both my salary and housing on it (which counts as income in some places and doesn't in others if you're taking the exemption). The IRS guidelines say that any unused housing allowance must be reported as income, but it doesn't use this kind of absolute language when saying whether the portion designated as housing allowance should be excluded from income at all; it says that it "may" be excluded (not mandatory, just an option).

It's supposed to be a "perk" that we're allowed to report some of our salary as housing allowance. I'm simply wanting to give up this "perk," because it doesn't make sense to take the "perk" in my situation. (How is it a "perk" if it ends up hurting you?) I'm pretty sure I can just count it as income instead, I just wanted to check with others who may have had the same issue before.

I'll call Guidestone and the IRS to check. Thanks!

 

Guidestone said they didn't see a problem with it. The IRS may indeed flag it because of how it differs from my previous years' returns, but ultimately there is nothing wrong with it, and it should work out just fine.

I'll simply be very clear on my return, and on the supplemental document that I always include, where the money came from, and where it's all being reported.

I tried to call the IRS hotline as well, but after following the rabbit trail of the automated system, it transferred me to a real person, who then transferred me to another automated response, which then hung up on me. I'll have to try them again later.