The decision Friday by U.S. District Judge Barbara Crabb could have far-reaching financial ramifications for pastors, who currently can use the untaxed income to pay rental housing costs or the costs of home ownership, including mortgage payments and property taxes. Read the full story online here
Tom Rainer who tracks such things for the Southern Baptists, reminders his blog readers that:
The housing allowance law was passed by Congress in 1954. Subject to certain guidelines, ministers are able to declare a portion of their ministry income as a housing allowance that is not subject to federal income tax.
- There is no doubt that ministers have benefited from this law.Many churches have as well, particularly smaller churches. The smaller churches are able to pay a minister a salary that has greater take home pay than a non-ministry counterpart. They are thus able to afford to pay pastors that they could not have afforded otherwise.
- This ruling was not a complete surprise. Judge Crabb does not have a friendly track record on ruling on issues dealing with religious matters.
- Judge Crabb stayed the ruling until the appeals process is exhausted. That means there is no immediate impact on ministers’ housing allowances.
- My best guess is that this ruling will eventually be overturned or reversed. Predictions are difficult, particularly when dealing with the intersection of legal and religious issues. But, because so many have asked me to do so, I will go out on this particular limb. Still, I predict that the ministers’ housing allowance will continue to be challenged, even if this particular effort at reversing the law proves unsuccessful.
- I advise ministers to be very conservative as they deal with this issue in the future. If at all possible, do not be dependent on the tax benefits garnered from having a housing allowance. Look carefully at the tax benefits you gain with the housing allowance. Be prepared to know what to do if the benefit goes away.
The amount a minister can take as a housing allowance has clear guidelines. Make certain you stay within those guidelines and do not abuse the tax privilege.
Rainer then offers encouragement:
- Watch for insights and updates from the Ethics and Religious Liberty Commission and Guidestone. Both organizations have top-flight leaders who are staying on top of these matters. You can read their initial joint statement after the ruling here.
“We who are ministers are under the authority of the God we serve. But our God also told us to be subject to the laws of the land where we live and minister. Though matters such as these can be disconcerting and unsettling, we know that God is always in control. For that reason, we have no cause to worry.”
Those who filed the case, representing the Freedom from Religion foundation, called the lawsuit “a sleeper,” saying it has received little media attention and may not be widely known by religious organizations. That will no doubt change with this win, she said. Given the dollar figures at stake, the spokesperson expects clergy across the country to pressure the White House to appeal the decision to the 7th U.S. Circuit Court of Appeals in Chicago.
The Evangelical Council for Financial Accountability is expected to pursue the matter. The Presbyterian Lay Committee is a member of ECFA. Their report can be found here.
This comes around every few years. Also receiving this deduction are the military and the some educators who live on site (such as a boarding school).
This is going nowhere and it will probably be overturned in due course.