How U.S. Government’s Special Tax Benefit for Pastors Promotes Inequality Among Clergy


According to §107 of the US Tax Code, all “ministers of the gospel” are free from income tax on their housing expenses. A pastor who makes $50,000 a year and spends $30,000 on housing only has to pay tax on $20,000 of his income. While there are rules about self-employment tax and fair rental values, the tax perk normally comes to about a 15 percent break.

The benefit originates from the 1921 Revenue Act by Congress that protected churches, including church-owned housing (parsonages), from property tax. The extension of this right to individual clergy was put in place by Congress in 1954 to promote equal treatment of religious institutions. They wanted to ensure that poor churches that cannot afford parsonages get the tax benefits of larger churches who have more capital.

As you can imagine, not everyone thinks this benefit is a good idea. The most recent of several challenges came in November 2013 when the Wisconsin District Court ruled that the clergy tax benefit was unconstitutional under the Establishment Clause. Judge Barbara Crabb made the decision because, she argued, the tax benefit is given to individuals solely based on religious merit, not on need.

That decision has drawn a lot of criticism from religious organizations. Clergy and their lawyers have complained that to remove the perk is a violation of their First Amendment rights, that it would cause unnecessary harm to clergy and their families, that clergy work extremely hard and don’t make much money, and that churches would not be able to do community service because paying their pastors would become more expensive.

Basically, clergy treat the tax benefit as a public entitlement, and they are afraid to lose it.

Last week, the U.S. Court of Appeals came to the rescue and overruled Judge Crabb’s decision. They dismissed the case not because they support the tax benefit to clergy, but because of improper legal process. The plaintiffs, an atheist/agnostic group called The Freedom From Religion Foundation, weren’t harmed by the tax benefit and therefore didn’t have standing to file suit. So the constitutionality of the tax benefit was never considered, and clergy still get the perk.

Churches, clergy, and religious publications all hailed this as a great victory.

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SOURCE: Faith Street
Dave Albertson

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