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Our clergy housing allowance: unconstitutional...again

PostPosted: Thu Oct 12, 2017 6:49 am
by William Thornton
I can almost guarantee that all of my clergy colleagues have seen this, since it is our sacred clergy tax break and puts real money in our pockets every year.

Simple evaluation of the ruling that the housing allowance is unconstitutional is my article.

Baptist Press: here

BNG, Bob Allen: here

My insightful and HA expert CPA friend Peter Reilly's Forbes tax blog: here

One pastor's defense Taking away the parsonage allowance is religious discrimination

My view: It's not an establishment of religion but a pretty sweet tax break.

For laity who may care and are puzzled: Qualifying clergy (most any ordained person, rabbi, imam, etc.) may receive part of their income as "housing allowance" and completely exclude that amount from income for income tax purposes. The clergy must pay social security on the amount, though. The average SBC pastor with cash income of around $70,000 probably excludes $20,000 or so of this through the HA.

Re: Our clergy housing allowance: unconstitutional...again

PostPosted: Thu Oct 12, 2017 12:46 pm
by Sandy
It's much more complicated than it appears on the surface.

It seems like it might be easier to keep the allowance if its use is expanded to all employees of non-profit agencies, instead of being limited to religious entities. The establishment clause doesn't mean that it's OK if the law applies to all religions equally, the Lemon Test, which has been applied by the federal courts for quite some time, means that establishment occurs unless there is a singularly secular purpose that has been established. By making the allowance available to the leadership of anything that can be defined as "religious," the government is simply establishing all religions equally. By including the employees of organizations that might have a secular mission and purpose, it would avoid that establishment.

As an ordained minister of the gospel working for a "religious" institution, I could get a HA if I wanted one, but past experience has taught me that I wind up saving a little bit more money by taking the FICA match, and avoiding the quarterly tax filing headache.

Re: Our clergy housing allowance: unconstitutional...again

PostPosted: Thu Oct 12, 2017 2:36 pm
by Dave Roberts
I'm afraid it's the same plaintiffs and the same judge all over again. Now it will go back through the same appellate process. We probably won't know what this ruling means for two to five years.

Re: Our clergy housing allowance: unconstitutional...again

PostPosted: Mon Oct 16, 2017 11:34 am
by Tim Bonney
Dave Roberts wrote:I'm afraid it's the same plaintiffs and the same judge all over again. Now it will go back through the same appellate process. We probably won't know what this ruling means for two to five years.


Last I read, this one doesn't apply to those of us in church owned parsonages.

I'd be OK with them dropping the housing exemption if the IRS would treat us like employees for SSI purposes and us not pay 15.3% Self Employment tax. We get a credit on one side and a ding on another. In many years, when I was renting or buying, the extra self employment tax basically wiped out much of the value of the housing allowance.

Now I'm back in a parsonage, so the circumstances are a bit different for me.

Re: Our clergy housing allowance: unconstitutional...again

PostPosted: Wed Oct 18, 2017 10:03 am
by Dave Roberts
Tim Bonney wrote:
Dave Roberts wrote:I'm afraid it's the same plaintiffs and the same judge all over again. Now it will go back through the same appellate process. We probably won't know what this ruling means for two to five years.


Last I read, this one doesn't apply to those of us in church owned parsonages.

I'd be OK with them dropping the housing exemption if the IRS would treat us like employees for SSI purposes and us not pay 15.3% Self Employment tax. We get a credit on one side and a ding on another. In many years, when I was renting or buying, the extra self employment tax basically wiped out much of the value of the housing allowance.

Now I'm back in a parsonage, so the circumstances are a bit different for me.


I think that treating us like employees would be advantageous, but churches will scream to have to pay 7.65%.

Re: Our clergy housing allowance: unconstitutional...again

PostPosted: Tue Dec 19, 2017 2:47 pm
by Dave Roberts

Re: Our clergy housing allowance: unconstitutional...again

PostPosted: Tue Dec 19, 2017 4:14 pm
by William Thornton
As expected, the judge stayed any action or changes until 180 days after appeals are over.

Re: Our clergy housing allowance: unconstitutional...again

PostPosted: Thu Dec 21, 2017 11:46 am
by Tim Bonney
William Thornton wrote:As expected, the judge stayed any action or changes until 180 days after appeals are over.


I'm not surprised. I agree with David above, if they would just treat us as regular employees we'd lose the housing allowance but if the church had to pay the other half of the SSI it would about balance out, at least for me in my past experience, and would be less paper work.

Re: Our clergy housing allowance: unconstitutional...again

PostPosted: Thu Dec 21, 2017 1:36 pm
by William Thornton
Tim Bonney wrote:
William Thornton wrote:As expected, the judge stayed any action or changes until 180 days after appeals are over.


I'm not surprised. I agree with David above, if they would just treat us as regular employees we'd lose the housing allowance but if the church had to pay the other half of the SSI it would about balance out, at least for me in my past experience, and would be less paper work.


I hear that often from my SBC colleagues, Timothy. The alternative manner of proposing it would be that the government should begin assessing taxes on every church that has any employees and compelling each and every one of them, to the smallest congregation, to file government quarterly reports.

Re: Our clergy housing allowance: unconstitutional...again

PostPosted: Thu Dec 21, 2017 1:54 pm
by Rvaughn
I am not an employee of my church, and don't mess with the housing allowance either.

Re: Our clergy housing allowance: unconstitutional...again

PostPosted: Wed Dec 27, 2017 8:53 pm
by Tim Bonney
William Thornton wrote:I hear that often from my SBC colleagues, Timothy. The alternative manner of proposing it would be that the government should begin assessing taxes on every church that has any employees and compelling each and every one of them, to the smallest congregation, to file government quarterly reports.


Any church I’ve served since seminary had at least one or more employees that they had to file quarterly reports on even if only a paid custodian. Churches that are giving secular employees 1099s are in most cases already breaking tax code.

I think a change in the tax law could push churches back towards parsonages over allowances. That is less of a problem for Methodists as more of our churches still have parsonages with the appointment system. I’m living in a parsonage now and expect to do that until retirement.

Re: Our clergy housing allowance: unconstitutional...again

PostPosted: Thu Dec 28, 2017 6:29 am
by William Thornton
You may be right and it not be much of a problem. I'm not sure what position our denominational leaders would take but feel sure there would be considerable support from pastors. A transitional period could be created. Exceptions for individual congregations who profess a conscientious objection could be made. While I've often seen such a proposal discussed on the blogs, I'm not aware of any lawmaker ever proposing it.

Re: Our clergy housing allowance: unconstitutional...again

PostPosted: Thu Dec 28, 2017 10:49 pm
by Tim Bonney
William Thornton wrote:You may be right and it not be much of a problem. I'm not sure what position our denominational leaders would take but feel sure there would be considerable support from pastors. A transitional period could be created. Exceptions for individual congregations who profess a conscientious objection could be made. While I've often seen such a proposal discussed on the blogs, I'm not aware of any lawmaker ever proposing it.


I bet it isn’t that high a priority for legislators. Either way the government is getting the money (either from me or the church) so, what is the incentive for the IRS or congress to fix it?

If the allowance really does get declared unconstitutional, then maybe congress might feel a need to do something.