[Author’s note: this blog is being held hostage until someone comes up with something else to say. Case closed on the SEC but NFL is still open. Until then, I will dribble out one Housing Allowance article daily. There’s no shortage of material…and it’s interesting.]
The Minister’s Housing Allowance is our best tax break because it gives the ordained pastor the means to totally exclude substantial sums of his clergy income from income taxes. It lets the pastor exclude all or part of that.
No income taxes! The holy grail of American financial life.
I have maybe a dozen articles here and on my old blog on the subject which often raises the ire of clergy colleagues whom, one supposes, prefers the special tax code treatment he (and in SBC life, virtually no females get this break, but see below for details) gets from Uncle Sam and the IRS. Own it, brethren, but explain it. It’s the law.
I have availed myself of the HA for all of my ministry and now in retirement, some two score years. Stating my conclusion up front, without caveats: It’s our special tax break, not necessarily more or less deserved than any other occupational group’s tax break, and I hope it continues to save my clergy friends (and indirectly the churches that pay them) a few thousand dollars per year. A few highly paid clergy save tens of thousands of dollars per year, a subject worth discussing.
Make a note here: The cash HA is the subject, not the HA as it applies to church-owned housing. The latter is neither special treatment or that advantageous tax-wise, since it applies to any worker who lives in their employer’s housing at the latter’s convenience. Caretakers and others who are provided housing need not be clergy. (My favorite is the couple who live in a house on the grounds of a fish camp. Free housing. Free fishing. Just take care of the Big House and do some cooking for the club members when they come.) There’s no special treatment for parsonage-dwellers. It’s not special to have to calculate self-employment taxes on the FRV of the humble parsonage and pay 15.3% taxes on that. I did it, though, for twenty years or so. Killer.
The pastor who just bought a $380,000 house, pays mortgage, taxes, insurance, utilities; pays for furnishings, improvements, pest service, etc. may be able to exclude from his clergy pay $40,000 or so. Real money, income tax free. Quibble about the numbers, but explain to your congregation exactly what is going on here. Explain to the self-employed plumber in your church, the guy who comes to work on your sink but can’t seems to keep his pants above the Luigi Line, why he pays for his house with no income tax enclusion but you don’t.
Explain why you not only exclude a certain amount of income (there are limits and rules, see Guidestone on this) but also get to DOUBLE COUNT the interest you pay; that is, interest costs come right off your income, excluding that amount from the dreaded income tax bill. In the case above maybe $12,000 interest. THEN you can turn around and use the same interest payments if you itemize deductions for income tax. Sweet, but not available to your plumber congregant.
So, what’s the problem with stating the facts?
Seems the HA has critics (two long lawsuits by the Freedom From Religion Foundation most prominently, both unsuccessful) and just talking about it raises the ire of some clergy. Better to keep it quiet than attract attention? Not very prophetic coming from my magnificent brethren who make a living afflicting the comfortable. My facts are always subject to checking but those who object to even talking about the matter because atheists make the same arguments might counter the argument. I’m open to being persuaded that the HA isn’t special preference for clergy only. Be my guest.
- Maximize your housing allowance. If you find ethical issues with it, your conscience is pricked, then don’t. But it’s the law. It’s legal. It’s a very nice tax break for clergy. Our democratic system is built on interest groups persuading lawmakers of the rightness of their need for a tax break. No one said the tax code has to be fair to all. You can always be generous and give your HA-less plumber a tip.
- Educate yourself on how it works and what is needed. Guidestone can help. Just last week I had lunch with a pastor who was receiving bad counsel on the HA from his tax preparer. You have to show the expenses and cannot just take the rental value of your house, furnished, as your HA. There are other limits and guidelines. Guidestone, Guidestone, Guidestone.
- Educate your church. It wasn’t that difficult to explain to deacons and finance committees exactly why my pay had to be divided into salary and housing allowance. At my level of pay, they were happy to help.
- Be humble about it. It isn’t exactly fair or justifiable in the 21st century but neither are a lot of aspects of the tax code. Frankly, it’s discriminatory towards women in SBC life. Some women do the same work as men in the church yet aren’t ordained and don’t get the housing allowance. (There’s a way to do this without ordination but it’s beyond my scope here.)
- Enjoy the savings and quit yer complaining when someone like me lays it all out in public.
Special word for the universe of Southern Baptists clergy and clergy wives who detest the 15.3% self-employment tax rate. You know, the one that you pay on your salary and on your housing allowance and which is a killer: We don’t get the HA because the government wanted to offset SECA taxes. The two are unrelated. You and your self-employed plumber pay the same.
But, yeah, I get it. We will turn the world upside down for the Gospel but just don’t step on my Sacred Clergy Housing Allowance. Might be a song someone could write on that.
Maximize it! Thank God for the one issue that unites all SBC factions.
When I started writing about this, people were taking the HA on their vacation homes.The IRS cut that nonsense out and the ERLC didn’t complain about it.
And, yes, I’m aware that military get a HA. I’m also aware that their HA is limited. Clergy is not limited save by the cost of housing expenses. Buy Biltmore House and if you get paid enough, deduct millions, all legal.