Our sacred tax break: Clergy Housing Allowance

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Our sacred tax break: Clergy Housing Allowance

Postby William Thornton » Mon Sep 03, 2012 6:50 am

New topic to go along with Bruce's "Kudos to William..." in this forum:

My view on the clergy housing allowance is that it is a welcome tax break for ministers but one that is viewed by the public only when abuses are publicized. These abuses contribute to the pressure to revise or eliminate it. I would much rather revise it than eliminate it.

How do you explain your government tax break, the clergy Housing Allowance? is my article up today. There are a number of links that feature some of the things written and said about it, along with examples of egregious abuse.

The abuses come because (a) the amount of the tax break is unlimited. If a minister lives in a $3 million home he can cut hundreds of thousands of dollars from his adjusted gross income and not have to pay income taxes for that amount, a savings of tens, possibly hundreds of thousands in income tax payments. Ordinary citizens are indirectly subsidizing the minister's mansion. (b) In some situations questionable individuals employed by churches or church institutions have been ordained as ministers to claim the HA. This is a more prickly area for government to enter, since we don't want some bureaucrat empowered to determine who is a legitimate minister and who is not.

No one said the gummit had to make sense with tax policy but a more sensible approach to giving ministers a tax break would probably be better for us in the long haul.

I take Bruce's point about the change in attitude from us on the state's involvement with affairs of the church. We tend to like the involvement so long as it favors and rewards us.

Having blogged a bit on this subject, it looks to me as if Southern Baptists take the approach of tiptoeing around any substantive discussions of the matter in hopes that no one will notice and things will just go on as they have for about a century...and we can just continue to take the tax break.
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Re: Our sacred tax break: Clergy Housing Allowance

Postby Tim Bonney » Mon Sep 03, 2012 8:52 am

William. I'd be willing to forgo the housing allowance tax break if I didn't have to pay both parts of SSI. I have never understood why the IRS considers me an employee for tax purposes but self-employed for SSI. I'm not or ever have been self-employed as clergy. When I was a Baptist any church I worked for could fire me. As a United Methodist the Bishop could fire me. As far as I'm concerned that makes me an employee.

(I reposted this from the Kudos thread.)
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Re: Our sacred tax break: Clergy Housing Allowance

Postby William Thornton » Mon Sep 03, 2012 9:31 am

Tim Bonney wrote:William. I'd be willing to forgo the housing allowance tax break if I didn't have to pay both parts of SSI. I have never understood why the IRS considers me an employee for tax purposes but self-employed for SSI. I'm not or ever have been self-employed as clergy. When I was a Baptist any church I worked for could fire me. As a United Methodist the Bishop could fire me. As far as I'm concerned that makes me an employee.

(I reposted this from the Kudos thread.)


It is both normal and natural to conflate the two taxes, income and Social Security, and then claim that, as a minister, it is fair for me to have lower income taxes with tax breaks ordinary citizens may not have, because I pay higher Social Security taxes. It may be natural but it is not a persuasive argument relative to the clergy housing allowance.

I believe the history of ministers having this dual status (employee for income tax purposes yet self-employed for SS tax purposes) is that this was the choice of the clergy way back when. Individual churches may, and I'm a little soft here on this provision but it shouldn't be difficult to look up, make a one-time election to treat all their ministerial employees as employees. There are differences in some aspect of tax laws for the various denominations, so I will be tentative with pronouncements on this.

Since clergy insisted on being treated as self-employed, the argument that they need an income tax break to offset their theoretically higher ('theoretically' because employers take into account their total cost of an employee including mandatory tax payments) SETA taxes, justifying an income tax break because of higher SETA taxes is somewhat like the kid who murdered his parents asking the judge for mercy because he is an orphan.

My conjecture is that there is no political will to eliminate this tax break, although any tax reform effort might include consideration of the ways a fraction of clergy abuse it.

We clergy should probably just be honest and admit that it is an arbitrary tax break, not something we actually earned or deserved. No one said gummit tax policy had to be rational or fair to all. We have our break. Others have theirs.
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Re: Our sacred tax break: Clergy Housing Allowance

Postby Tim Bonney » Mon Sep 03, 2012 10:19 am

William Thornton wrote:We clergy should probably just be honest and admit that it is an arbitrary tax break, not something we actually earned or deserved. No one said gummit tax policy had to be rational or fair to all. We have our break. Others have theirs.


I have mixed feelings about it because most United Methodists are still in parsonages. As such they have no choice as to where they live. But they still have to pay SSI on the fair rental value of the parsonage even if the church they move to has a huge expensive parsonage that causes their taxes to go up just by living there because supposedly it is a "benefit." Well I've seldom found a benefit in having to pay utilities for a huge house that my family of three (now two) never needed in the first place. So the big fancy parsonage is a dubious honor that I have been stuck paying taxes on and don't get equity out of. At this point I'm receiving a housing allowance rather than the parsonage so the issues are different. And given the itinerant nature of UMC Clergy I'd rather have the parsoange even with the strange tax issues.

I agree with you William that the system isn't likely to change any time soon. But there is no legitimate argument that a UMC pastor is self-employed as far as I'm concerned. I serve at the pleasure of the Bishop under the approval of the Board of Ordained Ministry. I can't serve a UM congregation without the Bishop's appointment. So it looks to me like I work for the Bishop.
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Re: Our sacred tax break: Clergy Housing Allowance

Postby Neil Heath » Mon Sep 03, 2012 10:56 am

I'm wondering if the housing allowance was created in part to equalize the variation in housing provided for clergy. Some got a house, others just a salary, and not necessarily a salary that covered the difference.
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Re: Our sacred tax break: Clergy Housing Allowance

Postby William Thornton » Mon Sep 03, 2012 11:29 am

Neil Heath wrote:I'm wondering if the housing allowance was created in part to equalize the variation in housing provided for clergy. Some got a house, others just a salary, and not necessarily a salary that covered the difference.


It is very old...likely came from 'the poor parson' motivation. One of my links give more explanation. There is no issue with constitutionality for clergy in pastoriums, since secular employees so required by their employer are treated the same.
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Re: Our sacred tax break: Clergy Housing Allowance

Postby Tim Bonney » Mon Sep 03, 2012 2:47 pm

William Thornton wrote:
Neil Heath wrote:I'm wondering if the housing allowance was created in part to equalize the variation in housing provided for clergy. Some got a house, others just a salary, and not necessarily a salary that covered the difference.


It is very old...likely came from 'the poor parson' motivation. One of my links give more explanation. There is no issue with constitutionality for clergy in pastoriums, since secular employees so required by their employer are treated the same.


Yes, that makes a lot of sense. At one time before the housing bust there was an advantage to getting the housing allowance in that you'd earn equity and also might eventually own a house free and clear. But right now the advise I'm getting is that unless you are sure that you are going to be in the house 8-10 years then you are likley to lose money selling it. Well I can't make those guarentees and since it is the church that decides that I get either an allowance or a parsonage it seems like the government penalizing me if I were taxed on money that goes into house that I'd not be taxed on if giving a parsonage. Does that make any sense?
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Re: Our sacred tax break: Clergy Housing Allowance

Postby Dave Roberts » Tue Sep 04, 2012 10:21 am

The whole issue of minister tax status doesn't make a lot of sense. I have also paid for exhorbitant rental values in one church where I lived in a parsonage. Churches can provide Social Security offsets to cover the normal church share, but that also becomes taxable income. The original idea for the self-employment status is that there was not the political will to impose payroll taxes on churches for ordained employees. It was simply the avoidance of things the Congress did not want to address.
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Re: Our sacred tax break: Clergy Housing Allowance

Postby Tim Bonney » Tue Sep 04, 2012 1:49 pm

Dave Roberts wrote: The original idea for the self-employment status is that there was not the political will to impose payroll taxes on churches for ordained employees. It was simply the avoidance of things the Congress did not want to address.


I didn't realize that Dave! What a strange decision though. I suppose there are independent church pastors that could make an argument for being self-employed, or maybe traveling evangelists. But it look crystal clear to me that I'm an employee of the United Methodist Church.

It reminds me of a discussion a church had with an accountant about the organist. The church wanted to treat her as a contractor and give her a 1099. The accountant, a member of the church, said "can she decide not to show up on a certain Sunday just because she feels like not coming or wants to play the organ somewhere else?" The response was "of course not!" His answer was, "then she is an employee and better get a W-2 and you better withhold the taxes!"
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