In the fall of each year, the Retirement Administrator sends all known retirees a “Parsonage Transmittal Form,” to be completed and returned prior to the annual meeting of the Trustees which normally takes place by the end of November.
At the annual meeting, the Trustees review and officially “designate” the parsonage certified by each retired member as being an excludable parsonage distribution for the upcoming taxable year.
This designation, which is reflected in the minutes of the Trustees’ meeting, is intended to satisfy the IRS requirements that the allowance be officially designated. However, each cantor is responsible for determining whether the amount requested does not exceed the lesser of the fair rental value of the home or the actual cost.
If you are planning to retire and begin receiving distributions from the Plan, you should contact the Retirement Administrator to obtain a transmittal form to inform the Trustees of the amount of parsonage expenses you expect to incur during the calendar year. Your transmittal form must be returned to the Plan in sufficient time for the Trustees to act before you begin receiving distributions which you would like to have treated as parsonage. Otherwise, any distributions you receive prior to the Trustees designation of your parsonage will be fully taxable to you under Federal income tax rules.
It is important to stress that you cannot exclude Plan benefits from taxable income simply because they have been designated as parsonage under the procedures outlined above. The parsonage designation is the first step. After a parsonage designation has been made on your behalf, you can then exclude from taxation only those benefits that have been designated as parsonage to the extent you have actual parsonage expenses, as indicated above. In this regard, it is suggested that you contact your individual tax advisor to determine exactly what you can claim as parsonage expense. If, at the end of the calendar year, you determine that your actual parsonage expenses are less than the amount you estimated on your transmittal form, please inform the Plan Administrator.