Guarranteed to stir the clergy masses into paroxisms of righteous indignation would be if congress, as a part of a comprehensive tax reform, attempted to make changes to our Sacred Clergy Tax Break, the minister’s housing allowance.
It’s a little early to speculate but, as pundits are want to do, there is speculation afoot: Tax Breaks Could Kill Tax Reform
There are special tax breaks for ministers and veterans and life insurance companies and blind people and gamblers. If you’re robbed or you have huge medical bills or you’re in a shipwreck or you ride your bike to work, you get a tax break.
There may be more than one tax break for ministers but the big dog tax break is our housing allowance which allows ministers to exclude a significant portion of their income from income taxes. (There are two types of this: one applies to ministers who live in church owned housing, parsonages, and another where ministers live in their owned or rented housing and receive a cash HA. The current HA lawsuit and most discussion centers on the cash HA.)
I’ve seen estimates that the cash housing allowance costs the U. S. treasury around $800 million. Some think it is higher but my CPA tax blogging friend, Peter Reilly, far more of an expert than I on this, convincingly argues that the total would be much lower. I’ll go with him on this. If the total savings is half or less of that, why bother? If the goal of reform is to address the more costlier tax breaks then the HA is chump change. The mortgage interest deduction and the state/local tax deductions are in the $70 billion range. Would congress think it to be worth the rancor to go after the humble parson for half a billion or so dollars? Probably not.
If we are apt to make changes to the status quo, I have yet to meet a SBC ministerial colleague who would not trade their cash HA for being considered an employee under Social Security whereby their church would pay them like any ordinary employee and make a matching FICA contribution of 7.65%. This would cut most minister’s SECA quarterly tax bill by half, although it would mean shifting that to their church. Churches, especially small ones, may object to being forced to pay these taxes but I’d guess most would adjust. They may adjust by cutting their pastor’s pay by an equivalent amount but that would be shabby. Some churches know how to be shabby, though. But all this would be Social Security reform, not tax reform and isn’t on the table. Besides, it is odious to some churches to be taxed even if it is a matching contribution for their minister. Complications would abound.
All of this tax reform discussion is with the backdrop of the federal court suit and decision that the HA is unconstitutional. In the suit “our” side, not the aggressive atheists as the Freedom From Religion Foundation has been called, sniffs that the tax break is a freedom of religion matter, not a mundane and pedestrian tax break. Ministers that live in their owned or rented housing, should not be taxed on their housing expenses because they are expected to live close to their employer and to use their housing in part for church purposes. I’m not fully persuaded that this is a winning argument.
I favor the housing allowance and have always used the housing allowance tax break. I did so while living in parsonages, while owning my own housing, and now in my retirement. All is done perfectly legally and properly according to GuideStone’s tax advice.
My stance for some years now has been that the HA is a nice tax break for ministers. It has been called our most important tax break and no one argues with that. The fact that a small proportion of very highly paid ministers are able to exclude hundred of thousands in income from taxes presents a problem, sometimes such is an embarrassing shame to us all. This could be solved by placing a cap on the HA. It is often noted that ministers aren’t the only ones to receive an HA, military personnel do also but their allowances are limited. Clergy housing allowances have no cap. If an enterprising evangelist bought the Biltmore House and raked in enough millions in his or her ministry to put in housing expenses there would be no problem excluding it all.
For now, churches are preparing their 2018 budgets. I recommend that all of my SBC ministerial colleagues review their housing expenses and work with their churches to be sure they are taking full advantage of it.
