Is a Housing Stipend Considered Taxable Income?

A housing stipend is a fixed sum of money an employer provides to an employee for lodging expenses. Unlike a reimbursement, which covers specific costs, a stipend is a predetermined allowance.

The Default Rule for Taxability

The IRS considers a housing stipend a taxable fringe benefit, meaning it is part of an employee’s compensation. Unless a specific exclusion applies, this payment is subject to federal income tax withholding as well as Social Security and Medicare (FICA) taxes.

This tax treatment is because stipends are provided under a non-accountable plan, where the employee is not required to prove how the money was spent. Without the requirement to substantiate expenses, the IRS views the entire stipend as taxable wages.

When Housing Stipends May Be Non-Taxable

In certain situations, a housing stipend can be excluded from an employee’s gross income. These exceptions are narrowly defined by the IRS and require adherence to specific rules.

Temporary Work Assignments

An exception exists for temporary work assignments. The IRS allows non-taxable housing stipends if an employee works away from their “tax home” for a period expected to last one year or less. A tax home is the city or general area of your main place of business. For these stipends to be non-taxable, they must be paid under an accountable plan. This means the payments are intended to cover duplicate living expenses and the amount provided should not exceed the actual expenses incurred.

For the Convenience of the Employer

An exception applies when lodging is provided for the convenience of the employer. For a housing benefit to be non-taxable, three conditions must be met. The lodging must be on the employer’s business premises, it must be furnished for the employer’s convenience, and the employee must accept it as a condition of employment. A direct link between living on the premises and the employee’s job functions must exist. Examples include a live-in apartment manager or a worker at a remote construction site where no other housing is available.

Clergy Housing Allowance

An exception exists for qualifying members of the clergy. A “minister of the gospel” can receive a housing allowance that is excludable from gross income for income tax purposes. This allowance can be used to rent or buy a home and cover related expenses. The exclusion is limited to the minister’s reasonable compensation and cannot exceed the home’s fair rental value plus utilities. While exempt from federal income tax, the allowance is subject to self-employment (SECA) taxes, which cover Social Security and Medicare.

How Taxable Stipends Are Reported

When a housing stipend is taxable, the employer includes the full amount with the employee’s regular wages on their Form W-2. This combined total is reported in Box 1, which reflects all compensation subject to federal income tax. The employer might also list the stipend amount in Box 14 for informational purposes, but this does not change its tax treatment. Because the stipend is already included in the Box 1 total, the employee does not need to report it on a separate line of their Form 1040 tax return.

State Tax Considerations

The tax treatment of a housing stipend at the state level can differ from federal rules. Not all states conform their tax laws to the Internal Revenue Code, so a stipend that is non-taxable for federal purposes might be taxable at the state level. Taxpayers cannot assume a federal exclusion automatically applies to their state tax return.

An employee who receives a non-taxable federal stipend should consult their state’s tax instructions or department of revenue. This ensures compliance and prevents unexpected tax liabilities, as the responsibility for confirming state tax obligations rests with the individual taxpayer.