Pastors’ housing allowance tax break update

Pastors and certain other church workers are allowed to deduct that portion of their salary used for housing from their taxable salary.  That “housing allowance” amounts to a huge tax break.  As we blogged about earlier, the Freedom From Religion Foundation has challenged that provision in federal court.  But in a parallel case, the United States Supreme Court has ruled that the atheist group lacks “standing” to sue on a similar tax issue, since they have not been materially harmed by the current law.  Some experts are saying that this deals a “lethal blow” to the housing allowance challenge.  See Church LawandTax.com.

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • Jeremy

    It is amazing that the rest of us have to pay taxes for clergyman and churches who get all these tax breaks. Never mind that some pastors are some of the most successful marketing strategists in America. They promise everything from health to wealth to a wonderful marriage to a wonderful life after you die — and do they deliver? One can only imagine what would happen if a non-religious business did the same. Maybe once a high enough percentage of Americans become non-Protestant, this issue will be reconsidered.

  • Jeremy

    It is amazing that the rest of us have to pay taxes for clergyman and churches who get all these tax breaks. Never mind that some pastors are some of the most successful marketing strategists in America. They promise everything from health to wealth to a wonderful marriage to a wonderful life after you die — and do they deliver? One can only imagine what would happen if a non-religious business did the same. Maybe once a high enough percentage of Americans become non-Protestant, this issue will be reconsidered.

  • http://lutherama.blogspot.com Dr. Luther in the 21st Century

    Jeremy,
    You speak from ignorance. Even with the housing breaks pastors can end up paying a bunch in taxes as they have to cover the entirety of their social security taxes, unlike the average American who has an employer covering a portion. Factor in many pastors are earning less than 35k and that is a tough living. You are not paying taxes for clergymen or churches (btw churches only receive the same tax benefit as a secular non0profit). You pay taxes for yourself. Oh yes, true pastors don’t promise health and wealth. In fact, we don’t even promise a “wonderful life after you die.” We proclaim that which has already been declared by God.

  • http://lutherama.blogspot.com Dr. Luther in the 21st Century

    Jeremy,
    You speak from ignorance. Even with the housing breaks pastors can end up paying a bunch in taxes as they have to cover the entirety of their social security taxes, unlike the average American who has an employer covering a portion. Factor in many pastors are earning less than 35k and that is a tough living. You are not paying taxes for clergymen or churches (btw churches only receive the same tax benefit as a secular non0profit). You pay taxes for yourself. Oh yes, true pastors don’t promise health and wealth. In fact, we don’t even promise a “wonderful life after you die.” We proclaim that which has already been declared by God.

  • helen

    Probably most parish Pastors deserve the tax break… which, if you’ll think about it, is really a “break” for the congregation. They can pay that much less in salary and often do.

    It can be abused. One pastor I knew was convincing in his declarations that he had a low “salary”. So he did, but he had managed to redirect 3/4ths of his income into the tax free side. When a breakdown was supplied once, he actually received almost $80,ooo, (and it was not a large church or an expensive place to live).
    Laity would need 6 digits to match his purchasing power.

    On the other side, another man I knew, who developed a congregation from mission status, turned down salary increases repeatedly in favor of building the church’s school. The end result, of course, was that little was paid into the pension fund for him and he and his wife retired in very modest circumstances.

    It is up to the laity to see that neither of these scenarios occur,
    but we are all sinners!

  • helen

    Probably most parish Pastors deserve the tax break… which, if you’ll think about it, is really a “break” for the congregation. They can pay that much less in salary and often do.

    It can be abused. One pastor I knew was convincing in his declarations that he had a low “salary”. So he did, but he had managed to redirect 3/4ths of his income into the tax free side. When a breakdown was supplied once, he actually received almost $80,ooo, (and it was not a large church or an expensive place to live).
    Laity would need 6 digits to match his purchasing power.

    On the other side, another man I knew, who developed a congregation from mission status, turned down salary increases repeatedly in favor of building the church’s school. The end result, of course, was that little was paid into the pension fund for him and he and his wife retired in very modest circumstances.

    It is up to the laity to see that neither of these scenarios occur,
    but we are all sinners!

  • http://www.toddstadler.com/ tODD

    While I think Jeremy’s overall argument (@1) is weak — who cares what they “promise” (or, rather, what some of them do, which Jeremy seems to have missed), and why does this only apply to “Protestants”? — his point is likely correct.

    Sorry, DLit2C (@2), I think you have a fairly large conflict of interest in this one. Nor are your arguments compelling. I know plenty of people who are independent contractors and/or self-employed, and they too have to pay their own taxes, do their own withholding, and do their own health insurance. Nor are they part of an organization like you are, that might assist in some way with at least providing solutions for such things. Many of them are also not raking in the dough. In short, they probably have it harder than the average pastor. In addition to all that, they don’t get a housing allowance tax break.

    When I ask myself, from a legal point of view, why pastors should and these other self-employed people shouldn’t, I can’t think of a reason. It’s certainly not because of some freedom of religion issue. So it’s simply a nice thing. That has traditionally been done. But, as Jeremy notes, odds are that the culture will abandon that tradition when/if it comes to the point that the religious/Christians are in the significant minority.

    We as Christians should be ready for that day to come, and sooner than we might expect. And we shouldn’t sound like whiners when it does. We’ve had a bit of a nice break for a while. Anyone who read the Bible surely wouldn’t expect it to go on forever. The world will — and does — hate us. Let’s not give them extra reasons for hating us by sounding like entitled children.

    But when that day does come, and congregations are asked to give more money so that their pastor can make the same effective income, it will test the faith of many. The love of money is like that.

  • http://www.toddstadler.com/ tODD

    While I think Jeremy’s overall argument (@1) is weak — who cares what they “promise” (or, rather, what some of them do, which Jeremy seems to have missed), and why does this only apply to “Protestants”? — his point is likely correct.

    Sorry, DLit2C (@2), I think you have a fairly large conflict of interest in this one. Nor are your arguments compelling. I know plenty of people who are independent contractors and/or self-employed, and they too have to pay their own taxes, do their own withholding, and do their own health insurance. Nor are they part of an organization like you are, that might assist in some way with at least providing solutions for such things. Many of them are also not raking in the dough. In short, they probably have it harder than the average pastor. In addition to all that, they don’t get a housing allowance tax break.

    When I ask myself, from a legal point of view, why pastors should and these other self-employed people shouldn’t, I can’t think of a reason. It’s certainly not because of some freedom of religion issue. So it’s simply a nice thing. That has traditionally been done. But, as Jeremy notes, odds are that the culture will abandon that tradition when/if it comes to the point that the religious/Christians are in the significant minority.

    We as Christians should be ready for that day to come, and sooner than we might expect. And we shouldn’t sound like whiners when it does. We’ve had a bit of a nice break for a while. Anyone who read the Bible surely wouldn’t expect it to go on forever. The world will — and does — hate us. Let’s not give them extra reasons for hating us by sounding like entitled children.

    But when that day does come, and congregations are asked to give more money so that their pastor can make the same effective income, it will test the faith of many. The love of money is like that.

  • DonS

    This tax break is yet another example of the morass which is our tax system. Ideally, all tax breaks, credits, and deductions should be eliminated, in favor of lower and broader rates for all. Take the power away from politicians to favor some people and activities over others, and restore that power to the citizens to live their lives in freedom. The only exception I might make is to exempt a poverty wage (e.g. the first $20,000 of income) from taxation to ensure that there is an incentive to work and to support oneself.

    In the meantime, until we have the courage to take the power away from the ruling class, we can at least limit the housing allowance to a reasonable level. The Schuller family (Crystal Cathedral) exemplified the potential abuse of this tax provision. Every adult member of that family had a position in the church, and the majority of their income was in the form of housing allowances, some in the six figure range per annum. That is ridiculous.

  • DonS

    This tax break is yet another example of the morass which is our tax system. Ideally, all tax breaks, credits, and deductions should be eliminated, in favor of lower and broader rates for all. Take the power away from politicians to favor some people and activities over others, and restore that power to the citizens to live their lives in freedom. The only exception I might make is to exempt a poverty wage (e.g. the first $20,000 of income) from taxation to ensure that there is an incentive to work and to support oneself.

    In the meantime, until we have the courage to take the power away from the ruling class, we can at least limit the housing allowance to a reasonable level. The Schuller family (Crystal Cathedral) exemplified the potential abuse of this tax provision. Every adult member of that family had a position in the church, and the majority of their income was in the form of housing allowances, some in the six figure range per annum. That is ridiculous.

  • http://www.bikebubba.blogspot.com bike bubba

    It’s a nice break, and I’d argue it’s largely repaid to society by the moral work of the church. That said, my take is that we ought to yearn for the day when income is no longer taxed, and thus this kind of provision makes no sense.

    And tODD’s comment reminds me of the joke about two men who were shot. The first was shot in the head, and though grievously wounded, was in critical but stable condition. The second, who died instantly, was shot in the wallet.

  • http://www.bikebubba.blogspot.com bike bubba

    It’s a nice break, and I’d argue it’s largely repaid to society by the moral work of the church. That said, my take is that we ought to yearn for the day when income is no longer taxed, and thus this kind of provision makes no sense.

    And tODD’s comment reminds me of the joke about two men who were shot. The first was shot in the head, and though grievously wounded, was in critical but stable condition. The second, who died instantly, was shot in the wallet.

  • http://lutherama.blogspot.com Dr. Luther in the 21st Century

    I have an easier solution. Get rid of Social Security, cut the government, and cut taxes. Everybody gets a tax break.

  • http://lutherama.blogspot.com Dr. Luther in the 21st Century

    I have an easier solution. Get rid of Social Security, cut the government, and cut taxes. Everybody gets a tax break.

  • http://www.bikebubba.blogspot.com bike bubba

    That would be simpler, not easier, dear brother Dr. Luther. There is a difference between simple (easy to understand) and easy (not difficult to accomplish). :^)

  • http://www.bikebubba.blogspot.com bike bubba

    That would be simpler, not easier, dear brother Dr. Luther. There is a difference between simple (easy to understand) and easy (not difficult to accomplish). :^)

  • Jeremy

    “That said, my take is that we ought to yearn for the day when income is no longer taxed”

    I yearn for the day when the government will give me a mansion made out of gold.

  • Jeremy

    “That said, my take is that we ought to yearn for the day when income is no longer taxed”

    I yearn for the day when the government will give me a mansion made out of gold.

  • That Guy

    “One who is taught the word must share all good things with the one who teaches. ”

    I am curious why this only applies to a “full-time” person in ministry and not to the scores of those who “volunteer” for less than vocational ministry. If the ox is to not be muzzled and the elders who rule are worthy of double honor, then aren’t those who also sacrifice hours throughout the week preparing and setting up lessons pro bono worthy of some good thing?

  • That Guy

    “One who is taught the word must share all good things with the one who teaches. ”

    I am curious why this only applies to a “full-time” person in ministry and not to the scores of those who “volunteer” for less than vocational ministry. If the ox is to not be muzzled and the elders who rule are worthy of double honor, then aren’t those who also sacrifice hours throughout the week preparing and setting up lessons pro bono worthy of some good thing?

  • JonSLC

    Speaking as a pastor who has benefited from this tax break, I have to agree with tODD. This provision is a nice thing that has been offered to clergy. I’m thankful for it, and so I’ve tried to use it honestly, some years even underestimating how much of my income would be used for housing related purposes and therefore paying more tax than I would have needed to.

    If this provision goes away, I wouldn’t argue. What I would request is that if this tax break is scrutinized, that other tax breaks would be, too. The concept of eliminating tax breaks and reducing overall rates is one I can get behind, though it could well mean forfeiting some current breaks I enjoy.

    tODD’s bigger point is well made: tax breaks to clergy and to churches are nowhere mandated by Scripture. As a practical matter, it could perhaps be argued that they are an application of the First Amendment. That is, it might be tempting for government to use tax policy to exert influence on religious organizations. But finally, tax exemptions are a blessing that churches have enjoyed in our nation. We shouldn’t be shocked if one day they are taken away. It would be a cross that churches would be called on to carry, as they followed God’s will to respect the government. (Though it would be permissible to seek changes through the proper channels.)

  • JonSLC

    Speaking as a pastor who has benefited from this tax break, I have to agree with tODD. This provision is a nice thing that has been offered to clergy. I’m thankful for it, and so I’ve tried to use it honestly, some years even underestimating how much of my income would be used for housing related purposes and therefore paying more tax than I would have needed to.

    If this provision goes away, I wouldn’t argue. What I would request is that if this tax break is scrutinized, that other tax breaks would be, too. The concept of eliminating tax breaks and reducing overall rates is one I can get behind, though it could well mean forfeiting some current breaks I enjoy.

    tODD’s bigger point is well made: tax breaks to clergy and to churches are nowhere mandated by Scripture. As a practical matter, it could perhaps be argued that they are an application of the First Amendment. That is, it might be tempting for government to use tax policy to exert influence on religious organizations. But finally, tax exemptions are a blessing that churches have enjoyed in our nation. We shouldn’t be shocked if one day they are taken away. It would be a cross that churches would be called on to carry, as they followed God’s will to respect the government. (Though it would be permissible to seek changes through the proper channels.)

  • Jeremy

    To be fair, I think a lot of “non-profits” need to have their statuses reexamined, and not just churches. “Non-profit” is not what comes to my mind when I read about a leader of a non-profit having a take-home pay that exceeds $100,000 a year.

  • Jeremy

    To be fair, I think a lot of “non-profits” need to have their statuses reexamined, and not just churches. “Non-profit” is not what comes to my mind when I read about a leader of a non-profit having a take-home pay that exceeds $100,000 a year.


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