We clergy love our minister’s housing allowance and want to keep it. It’s our very own Sacred Clergy Tax Break and the most important item in the tax code that recognizes clergy and gives us favorable treatment under the tax law. Unsurprisingly, some want to clean up the tax code and eliminate the tax break that is given to ministers but not to others.
The Freedom From Religion Foundation has challenged this twice. Both times the federal district court ruled in their favor but the federal appeals court overturned the decision. The FFRF, whose co-presidents Annie Laurie Gaylor and Dan Barker were the plaintiffs in the case, says that
“The housing allowance is so clearly a handout to churches and clergy, and it so clearly shows preferential treatment and discriminating in favor of ministers.”
Nothing much to argue about in that sentence but making the HA unconstitutional goes deeper than handouts and preferential treatment which is what the tax code is all about.
The appeals court decision recognized that the matter of churches paying clergy a cash housing allowance is one of many vexing church-state areas. They go orthopedic on us, following a 1970 decision that calls these areas “play in the joints” of the First Amendments establishment and free exercise clauses. In the end, they decided that giving the humble and poor, or exalted and rich, parson a tax break is not an establishment of religion by the government. The decision
…recognizes ministers often use their homes as part of their ministry. This provision thus eases the administration of the convenience-of-the-employer doctrine by providing a bright-line rule, instead of requiring that ministers and the IRS repeatedly engage with a fact-intensive standard.
The cash housing allowance, money paid by a church to the minister as part of his compensation so that he can buy or rent his own domicile, may be excluded from income taxes, sayeth the court. Essentially, they say that it would be too complicated and intrusive to require clergy to justify their allowance with certain facts like how many times did the minister use his house to host the church women’s group or the like.
Peter J. Reilly, my go-to CPA expert for the housing allowance says, Seventh Circuit Blesses Tax Free Housing Payments to Clergy.
I think it is fair to say that the reasoning of Professor Edward Zelinsky author of Taxing The Church carried the day. The Court viewed 107(2) as just one of a myriad of provisions exempting housing. To treat ministers like secular employees receiving the 119(a) convenience of the employer exemption might lead to intrusive inquiries. This is weighed against the IRS having to patrol the boundary of who is a minister.
Well and good. This is our tax break. We get to keep it, though I’d expect there may be an appeal.
Your job, brethren and sistren, is to maximize your allowance allowance so that you exclude as much income as you can from income taxes. What good is it if you have this great tax break and don’t use it?
See GuideStone to know how much is your maximum. In my area the average home price is around $180,000. I’d judge that a full-time minister could exclude $20,000 or so of his pay by the church. If you are a megacompensated celebrity megapastor and live in the Biltmore House, you can exclude millions, which is part of the reason why we will have challenges to the housing allowance always.
Sorry, no help on SECA taxes. You still have to pay those on your housing allowance.
As an addendum on all this: let’s not adopt the posture of the poor, beleaguered, persecuted, pious Christians in this. It’s a nice tax break that clergy have enjoyed for scores of years.