Eliminating Christian Pastors’ Housing Allowance

You know how pastors get a ridiculous “housing allowance”? They get to exclude the cost of housing from their reported income, so that money never gets taxed.

Essentially, that means free housing, courtesy of the government, for reasons that no one can quite understand.

A government commission is looking into this issue and Christianity Today has a collection of opinions on the issue.

One of them caught my eye because it comes from Gene Edward Veith, provost at super-Christian-conservative Patrick Henry College:

“I’m all for saving tax money, but I do see the legal complication of giving tax breaks just to ministers, structured the way it is. A lot of ministers depend on it, and I don’t want pastors to suffer. I hope it’s retained, but at the same time it’s hard for me to find reasons why it should be.”

And, of course, you have several church representatives talking about how necessary this allowance is…

With all the money some of these places take in, you would think they could just pay the pastors what they think they’re worth instead of wasting the money on another church or 10.

That’s really the crux of the problem. The pastors who abuse the system already make way too much. And the pastors who don’t make any real money are the ones who would get screwed if the allowance was taken away.

Still, the government shouldn’t be giving Christian churches any special treatment when other non-profit leaders get no such reward.

Mary

TAX them! As an accountant I see first hand how much one can make as a pastor tax free. Even my Republican bible thumping boss thought it was ridiculous.
David McNerney

A friend of mine is one of those low-paid pastor types, and even though he finds it hard to survive on the pittance he’s given, with respect to this statement:

With all the money some of these places take in, you would think they could just pay the pastors what they think they’re worth instead of wasting the money on another church or 10.

He would absolutely disagree with this. He would see it as perfectly reasonable that he would get little, while the “wise” leaders of his church live in mansions.

Deluded or what.
deen

There is of course one other solution that is fair and allows priests to keep their tax-free housing allowance: tax-free housing allowances for everyone.
mkb

Amen, Hemant.
Min

Now, I agree that the housing allowance is absurd, but..

They get to exclude the cost of housing from their reported income, so that money never gets taxed.

Essentially, that means free housing, courtesy of the government, for reasons that no one can quite understand.

Am I missing something? You’re going to have to explain to me how “not having to pay property taxes” is the same as “free housing.” My property taxes are a relatively small fraction of the actual cost of the house, and I live in a state with fairly high property taxes, even.
Rob

Min,

It works like this. The Church pays the pastor $40,000, which she pays taxes on. But the Church also gives her a $400,000 house, which she does not pay income tax on. It’s an unbelievable scam.
tiyamonet

Min, I don’t think it’s just property taxes. I rent an apartment. I don’t get to exclude the portion of my income that goes for rent on my taxes because I’m not a pastor. I think that’s more the crux of this problem.
Miko

deen:

There is of course one other solution that is fair and allows priests to keep their tax-free housing allowance: tax-free housing allowances for everyone.

Speaking as someone who wants taxes to be eliminated entirely, this is actually not a very good idea IMO. The problem with tax allowances is that they distort price signals and cause people to spend more on the subsidized activities than they otherwise would. Put another way, housing allowances are going to lead people to live in larger houses. And with the out-of-control land and housing markets that already exist, in which the poor and near-poor often spend 50% of their income on housing, further encouraging the waste of these limited resources is a really bad idea. Also, with 97% of the land in the U.S. owned by 3% of the people, such a program is likely to be misused in ways that are beneficial primarily to the very rich. Realistically, taxes shouldn’t be cut until the budget deficit is fixed (as it’s a hidden tax, and a really bad one too since inflation disproportionally affects the poor) and, when they are, they should be cut across the board rather than through the creation of special allowances.

In the short term, we should focus on evening out the tax code: eliminate special tax breaks for businesses, but lower the corporate income tax rate so that the same amount of revenue is collected; eliminate the mortgage deduction, but lower the personal income tax rates so that the same amount of revenue is collected; etc. By the same token, eliminate the religious housing allowances, and lower taxes for everyone to compensate.
Hypatia’s Daughter

Min, Hemant is talking about housing allowances, not property taxes. Property taxes are a deductible expense for churches (indeed all businesses & non-profits). But if a church provides housing or an allowance to pay for housing, it is a part on the income you pay to the pastor and he should be taxed on it like the rest of his income.
I know pastors who are as poor as church mice but then the issue is that if the church cannot draw enough adherents to pay a decent salary, should the taxpayers be footing the bill to keep it running?
This goes hand in hand with those wealthy mega-church pastors who live a lavish life style but claim they draw no salary. Everything they have (cars, houses, planes) are “owned” by their church; they get “expenses” to cover all their other costs. The church picks up the tab and neither files nor pays taxes (so no oversight) and the pastor pays little or no income tax.
In theory, they could be booted out by their congregation and lose it all but most of these churches were created by these pastors and the congregations don’t want to cross “a man of God”. It’s a scam.
frank

I agree that pastors shouldn’t get the housing allowance, but I think the way you put it is a little to charitable it two respects. Firstly, you suggest that pastors are equivalent to non-profit leaders, and they aren’t. There is nothing charitable about leading a worship service or pretending to provide psychological services without having the appropriate training. Churches should be taxed like any other business, and their leaders like any other business leaders. Second, you suggest that it is only the pastors who are rich who are abusing the system. I think they are all abusing the system. Why should we have any sympathy for the pastors who aren’t making much? Why shouldn’t they have to go out and get a real job and contribute something to society?
TwoNewfs

I was a worker on a VT farm, where housing was provided. The value of the housing provided was considered to be income, and therefore taxable. If a pastor gets free housing, and doesn’t have to declare it, at, say $2,000/month to rent a house – he’s getting $24,000 a year tax free!
Jeremy Hoover

I’m a pastor, and this is how it works. There are several rules that are supposed to be followed. I know it’s abused by some, and I wouldn’t complain if they took this away (for whatever that’s worth). Pastors are in a weird position with the IRS. We are taxed as an employee for income tax purposes but as self-employed for SECA purposes. If our compensation is structured properly, we end up paying the entire 15.3% SECA tax ourselves. If the church pays 1/2 of it, we are supposed to report that as income.

Pertaining to the housing allowance, it is an exclusion from income tax only. It is supposed to be added back in for SECA. For example, if my salary is $35,000, the church can declare $15,000 of that as housing allowance. My reportable income for income taxes is $20,000. I still report $35K for SECA (Schedule SE). Also, if my housing costs are only $12,000 for the year, I’m supposed to add back in the $3,000 that was excluded and pay income taxes on that.

I’m not justifying the exclusion, merely trying to show how it works out in practice.
Rick Berger

“I hope it’s retained, but at the same time it’s hard for me to find reasons why it should be.”

I see the same sort of cognitive dissonance in every echelon of the religious intelligentisa, of which I am sure Veith is a part of over at Patrick Henry.

Imagine being raised Evangelical–since the earliest age, you’ve been told faith is the greatest virtue and to be wary of questioning too much. And this is the result, as Veith has clearly considered the evidence at hand and made a decision, but has his moral intuitions caged by his religion.
TikiCricket

There is nothing charitable about leading a worship service or pretending to provide psychological services without having the appropriate training.

Well put, Frank.
The Godless Monster

Tax the bastards.
Jennifer Harris Dault

I’m in seminary, studying to be a pastor. I’ve been following this blog for at least a month now, thanks to the recommendation of a friend. I think you are absolutely right on this issue. I’ve never understood why ordained ministers have a different sort of income division that everyone else. If it did extend to all in the non-profit arena, it might make a little more sense — but it doesn’t (it doesn’t even extend to everyone working at a church).

Thanks for always making me think.
Wick

I’m an associate pastor who has a portion of my salary that is not taxed, claimed as a housing allowance.

As I understand, it’s because the IRS views a Pastors home as a “home office”, as with anyone else who works from home who is not a pastor.

The amount of time I’m available to those in our church family, times I’ve had groups over, studies happening, phone calls, prayer, etc…is very comparable to the amount of time many spend in their offices. Sometimes it would definitely be easier on a Pastor’s family if their work hours were limited to a 9-5 office slot. But the reality is, much of what we do happens in off hours/days, and we have to work hard to protect family and home time from the needs of those we serve.

I agree, unfortunately there are many who abuse that system, and hardly qualify for the term “Non-profit”. Just as there are many who work from home who manipulate the system to “claim” things they “need for work”.

But for many of us, working to “make it work” on a smaller income, raising a family with financial needs like anyone else – to be able to honestly claim a “business expense” in a place we definitely put in work hours…is a blessing.
Defiantnonbeliever

How can I become a pastor of reality and get free housing?
Thackerie

Wick says the IRS recognizes the pastor’s home as a “home office.” I also work from home, but I only get a tax break for the part of my home that I actually do my work in, as a ratio of the square footage of my actual office area in my house compared to the square footage of my entire house.

Yep, the clergy are benefiting from an unfair tax break. And they also get a free pass from having to do complicated calculations like we regular taxpayers do.
Beloved Spear

My understanding of this is different from Wick. The history of the housing allowance exemption stems from the longstanding practice of a congregation providing housing for a pastor. That would typically take the form of a “manse” or a “rectory,” a house owned by the congregation in which a pastor would live so long as they were employed by a congregation. Some congregations chose not to build houses, and instead gave an allowance for the sole purpose of providing housing. It’s the congregation’s house and/or money, not the pastor’s.

The issue of the exemption is a fair one, though it hardly means a “free pass from having to do complex calculations.” Pastors are also self-employed, and our tax status is all manner of crazy.
Verimius

Not just Christian pastors get the allowance: rabbis and cantors are eligible too. Who else?

It’s still a bad idea.
Verimius

I meant to ask, what other ministers or clergy are eligible? Buddhist monks? Shamans?
CanadianNihilist

Maybe the pastors could do something wild and crazy like GET A JOB!
They work one day a week and get free housing. If they work Monday to Friday they’ll be able to live like the rest of us and not off your dollar. Any prep work to the sermons should be treated as a hobby that is done on their own time after work.
ACN

I agree with the plan of closing the housing allowance loophole.

They work one day a week and get free housing.

I do not think this sentiment is quite accurate though. There are some clergy who get “paid” a lot for doing relatively little. There are many other clergy whose myriad of demands on their time hardly qualify as “working one day a week”.
hoverfrog

It is unfair. The state is denied fair and equal taxation and has to increase the tax burden on other citizens. The employee (pastor) is unfairly tied into employment by not being granted a fair wage. Golden handcuffs prevent him or her from leaving the church and stop them from accumulating private assets to advance in life. The only one who benefits is the church.

I thought that the wall of separation was supposed to prevent the state from unfairly giving an advantage to a religious institution?
Roxane

I’d just like to thank the clergypeople who have responded to this post and brought some clarification.

What annoys me more than anything is the way the megachurch pastors have taken advantage of a tax system originally designed to benefit pastors of very modest means to create fabulous personal wealth. Apparently Greed has changed sides–it used to be one of the Seven Deadly Sins, but all of a sudden it seems to be one of the cardinal virtues.

And hoverfrog, I think you’re right. How many times have we heard about pastors who have lost their faith, but find that they lack the training for other jobs that would provide for their families? They can’t afford to give up this housing arrangement.
wisiti

Although I am an atheist, I think some of you are taking an uncharitable, and frankly disappointing attitude towards many clergy members. As ACN points out, there are many pastors who do take advantage of the system, and frankly, I think one is too many at the expense of tax-payers. However, not every pastor is purposely trying to defraud and dupe his or her congregation.

Don’t get me wrong: I DO think religion is a fraud, but my point is that I would bet that a large number of Pastors are not “in” on this fraud in the way that many of you seem to be implying. There are many pastors of small congregations that aren’t paid terribly well and do work 7 days a week. That’s not to say that they necessarily deserve the pay for the work they do, but you all seem to be implying that all of these Pastors get paid $30K+ a year for maybe 5 hours of work a week.

Consider a Pastor of small congregation like the one I used to attend. He spends 10 hours a week preparing his adult Sunday School lesson and sermon; he spends 10 hours a week making at-home visits to elderly and sick congregants as well as visiting those who may be in the hospital; he spends another 10 hours a week doing “business” like paperwork, meeting with the Edlers, planning upcoming events, etc.; he spends another few hours a week on the phone or counseling congregants; maybe he leads one or two bible studies a week for an additional ~3 hours a week; Some weeks he organizes and attends church events; some weeks he leads a youth group or other sunday school class when others can’t; He probably counsels newlyweds a few hours a week. In a small church he might do maintenance or secretarial work.

I just think we don’t need to be jerks about criticizing religion and religious institutions. Please don’t misunderstand me: I am NOT talking about mega-church pastors who have dozens of other employees doing most of this work and STILL get paid $70K+ a year. I’m talking about a small-town Pastor with a 200 person congregation and maybe 1 or 2 part-time employees.
Lost In The Bible Belt

This should be taxed just like any one else would be taxed. “preachers” living off of peoples emotional needs is just sickening anyway. Btw, my grfather “preached” for over 50 yrs, never took one red cent for it, built and payed for his own house, paid all taxes, raised 7 children. And how did he do it? He had a real job (just like Jesus and Paul!).
Pseudonym

There is a simple reason for this: Clergy have traditionally been paid a pittance, but were given a residence as part of the package. Some modern churches don’t have a manse, and so pay an allowance instead. It is a policy of many churches that they do not pay a housing allowance if they have a perfectly usable manse.

Yes, some churches and clergy abuse this. But really, how is this different from any other organisation? There is no shortage of businesses (both for-profit and not-for-profit) abuse fringe benefits to avoid paying income/payroll tax. Why don’t we don’t see them mentioned in the same breath on FA? Because religion is special and different.

The right solution to this problem is the same as it has always been: Churches should be treated like any other organisation. If they are not-for-profit, then they should be treated like any other not-for-profit organisation and be able to obtain all the tax benefits available to not-for-profit organisations in return. If they are a business, they should be treated like any other business and pay tax accordingly. If they abuse the fringe benefits system to evade tax, they should be treated like any other organisation which does so.
Mike Clawson

I used to be a pastor and had a housing allowance. What Jeremy Hoover said above is completely accurate – Pastors DO pay tax on their housing allowance. We simply pay it as self-employment tax, not income tax. In fact, because the same income that gets taxed for self-employment, also gets taxed AGAIN for the income tax, pastors are essentially taxed twice on the same income. And since there are WAY fewer deductions and such that one can take on self-employment income, and since the self-employment tax is a flat rate regardless of total income, we often end up paying way MORE in taxes than a normal person would.

What this meant for me personally (I can’t speak to any other pastor’s situation), is that even though my total income (including housing allowance) fell below the poverty line and thus below the point where normal income taxes even begin, I actually ended up having to pay thousands of dollars of self-employment tax.

So ya’ll can go on complaining about it if you want to, but personally I would have preferred to have been allowed to just report it all as regular employee income and only been taxed on it once like the rest of y’all, instead of twice. The housing allowance was one of the only things that kept it even manageable and brought my tax burden down into the range of what I’d be paying if I were allowed to just file normally.
Doc

Having been raised in a Pastor’s home I can testify of the many long hours invested each week by any Pastor who is truly serving a congregation and if one is not serving the congregation he (or she) will not last long in any particular church. Pastors are “on duty” 24/7 and trust me a congregation takes advantage of that situation. Serving people in general is difficult but serving people through some of the most difficult times in their lives is extremely taxing on a Pastor and his family. Then, one must deal with the attitude and opinions of those who have never served others and have no real concept of what it requires. Having done both jobs in my lifetime I can tell you that I have longed for the days to return when I “punched the clock” and went home never to be troubled by the issues that I left at work when my shift ended.
Now as to the housing allowance question. By law the Pastor can only report the “lowest amount” between the actual designation of the church body OR the fair rental value of his home and furnishings or, the actual costs of providing housing via records that are kept. Again, the law says that the LOWEST amount is all that may be claimed on one’s taxes as an expemtion. And for those who somehow see the parsonage allowance or housing allowance as some kind of governmental support of a Pastors living do you really believe that tax credits or exemptions are government support? If you do then the government is supporting every family with minor children by giving them both a tax credit and an exemption for their children. Such a belief falls more into a socialistic viewpoint of our nation than any of us should be comfortable with.
hawfan

Sorry, a housing allowance is not completely tax-free to the pastor. Though that portion is excluded from federal tax, he/she does have to pay self-employment tax of 15.3% on the whole thing.

A regular employee pays 7.65% in social security deductions and the employer pays the other half. A pastor is considered self-employed by the tax code and must pay the WHOLE tax on ALL the income.

When you figure that in 2009, 47% of Americans paid NO Federal tax of any kind, pastors still paid 15.3% of their TOTAL income (including housing allowance) plus FEDERAL tax on the remaining difference. Most pastors are underpaid and pay their fair share of tax.
KHaygood

Interesting discussion. I appreciate the people who are willing to look at this in a more informed way than the ‘pastors pay no taxes on their housing’ (unless you count that 15.3%) or ‘pastors are paid way too much because they only work one day a week’ (come and follow me around for a week if you want to do a little reality check on that one).

My tax-preparer is a retired minister who specializes in clergy taxes, and advises all of his clients to save 1/3 of what we make to give to Uncle Sam at tax time (quarterly estimated self-employment taxes, of course). And that includes the below-poverty-level guy serving a tiny church (with no janitor, no secretary, no paid musician, etc) who still has to pony up a third of his paycheck at tax time. If they take the housing allowance away, which is probably going to happen in the next few years, I hope they’ll let us file as regular employees.
Awali607

Whoever said Pastors work one day a week, you are very ignorant. If I knew a pastor who only worked 1 day a week, I certainly would not attend their church! My husband is a pastor at our church which happens to be labeled a “mega church”. We have 4 campuses with over 4,000 attendees on a weekend. Our church is very frugal and has a bare minimum staff. At our location there are 3 pastors and over 1,200 attending each weekend – try managing that many people with 3 pastors working 1 day a week?? …Doesn’t work too well. My husband is salaried at 30k a year and works 50+ hours a week. Between preparing for the weekend service, student activities, hospital visits, meetings, and having to be at the 2 services on Saturdays, 3 services on Sunday mornings, plus 2 student services on Sunday nights – my son and I are lucky to spend a day with him. He works 6-7 days a week and is never off the clock. I don’t think people give pastors enough credit. And I can see how its hard to understand unless you spend a day in their shoes, as with many jobs. I think its crazy sometimes that a CEO of a company could make millions – but I’m not going to discredit them as I do not know what their daily duties are. They are so “over paid” as some would say, yet your busy worrying about my husband getting a housing allowance on our 1,200 square foot ancient house and a pitiful 30k/year? ….oh goodness!
Rykabeth

I am that below-poverty-level guy in the tiny church with nobody but myself. I cannot tell you how frustrating it is to come up with 15%+ of my dinky salary to fork over to the government each year. My family lives in constant unwanted debt all in the name of taxes. We frequent the food bank and “Good Will” stores and my kids can’t be in sports because we can’t afford it. If they took the housing allowance away we would starve for sure. I would much rather give up this “ridiculous” housing allowance and become a “regular employee” in the eyes of the government than have this dual tax status that requires me to pay an insane amount of money at the end of each year because I’m considered “self employed”. Its such a myth. For the vast majority, pastors get no break at all.