Yesterday my Facebook lit up with posts by all my clergy friends. You woulda thought that Pope Francis hit the Methodist Council of Bishops in the face with an Episcopalian thurible while singing “In Christ Alone” from the Presbyterian hymnal. It seemed to enrage all clergy equally and their voices lifted up to the heavens their wails of lament.
And like most things that unite all of Christendom together, it was about money. Specifically, losing a lot of it.
Federal Court rules Housing Exemption is Unconstitutional
Clergy enjoy a unique privilege in tax exemptions: they are able to declare a part of their income to be federal-tax-free as a housing allowance or parsonage exemption. The Freedom From Religion Foundation brought a suit against this tax code which has worked its way up from the California courts for a few years now to the Federal District Court. They ruled in favor of the Foundation in that:
The so-called “parish exemption,” which allows religious ministers to avoid paying taxes on the value of their housing granted to them by their religious employers, “violates the establishment clause” of the U.S. Constitution and must be discontinued. The law, 26 U.S. C. § 107(2), has been on the books since 1954.
The change in tax code will likely not take effect until the Supreme Court rules on it in a year or two. But it is a foregone conclusion to any lawyers looking in.
I know this is unpopular but here it is: I agree with this ruling because the housing exemption is not constitutional. It won’t stand up in court, its origins were a violation of church/state separation, and it is bad tax code.
However, the Privilege was to cover an unfair Burden
That said, I disagree with the sentiment that clergy are bilking the American taxpayer because of this law. Regardless of its origins, like many laws it eventually served a purpose: to fix an undue burden to clergy in tax law with the hope that it would more-or-less be a wash to offer a parish exemption.
Here’s what the undue tax burden is:
- Clergy are considered employees of a local church when it comes to Federal income tax (FICA), but per the IRS they must be considered self-employed when it comes to the Social Security tax (SECA).
- What this means is that clergy pay half their FICA but pay the full SECA. In contrast, secular employees of institutions have their employers pay half FICA and half SECA.
- If churches want to treat their clergy like secular employees and pay the clergy’s half of SECA, it is counted as income to the clergyperson and the clergy is taxed on it (PDF – page 4)
- Thus, religious professionals have an undue tax burden on them because they are in a religious institution and are not considered employees for half of their taxes. No other profession has this tax burden.
For decades, the IRS has turned a blind eye on the PE because of this inequality with the designation of clergy as employees-yet-not-employees. The hope is that the inequality of tax burden would be alleviated by the PE, nevermind that clergy are still taxed on the PE by Social Security (SECA) and it is counted as “compensation.” But whatever.
So no, I don’t have any problems with the FFRF or secular folks who say the PE is an unfair tax advantage. I agree. But I wonder if the same folks would also recognize the unfair tax burden that clergy have because of current IRS rules that state that ministers must be considered self-employed for the purposes of Social Security. The bad tax code became a countermeasure to another part of bad tax code because fixing the tax code would just suck.
Thanks to Religious Jerks for abusing the System
Instead, my problem is with religious jerks. That’s right, I said it. I have no doubt that this remedial solution would have remained in place indefinitely if it weren’t for a bunch of religious jerks who have ruined it for the rest of us and galvanized public opinion and group activism against this law. For example:
- A Nashville church built a bookstore and a gym that it charges membership fees for. It claims that those are ministries and are exempt from property tax.
- A Indianapolis church stopped paying any taxes for 17 years stating that its $6m campus was exempt from everything because all of it belonged to God. They were eventually evicted, thankfully.
- Rick Warren, as per usual, is the worst when it comes to self-righteousness in church/state collisions. It was because of his mansion and housing allowance that Congress had to change the tax law to temporarily address clergy housing exemption.
The ministerial exemption has faced legal challenge before, notably in 1996 when the IRS ordered Purpose Driven Life author Rick Warren to pay taxes on part of the nearly $80,000 he claimed as a housing allowance as pastor of Saddleback Church in Lake Forest, Calif.
Warren later won on appeal. During the process, however, focus shifted from whether Congress intended to allow an unlimited deduction or cap it at a fair market rental amount to whether or not the whole idea of exempting clergy is constitutional. Lawmakers responded in 2002 with the Clergy Housing Allowance Clarification Act to protect the parish exemption but limit it to the fair market rental value of a home.
In short, I blame those religious people who abused the system and took millions of dollars in taxes from communities that could have helped schools, infrastructure, and senior services because of their self-righteousness. But I protest personally being lumped in with the religious jerks because their actions will cause me to have an unfair tax burden which will then take years to clean up.
Who will fix the unfair Tax Burden?
So if the Freedom from Religion Foundation is really wanting to seek equality, why not offer their next suit for the churches to advocate for a just resolution to both the tax code and to the clergy. After all, from the trial court:
Some might view a rule against preferential treatment as exhibiting hostility toward religion, but equality should never be mistaken for hostility. It is important to remember that the establishment clause protects the religious and nonreligious alike.
When this lawsuit ends and the Parish Exemption is taken away, the effect will not be equality but inequality, with clergy being given an undue tax burden unlike the rest of secular society. But all I expect to hear are crickets.
Thoughts?
Jeremy, the spirit of what you are offering here is right on, but I believe the specifics of some of the tax terms and issues you describe at the beginning are not quite right. FICA is not income tax; it is a (non-self-employed) employee’s portion of Medicare and SS. The employer pays the other half. Since clergy are self employed, we pay SECA, which is essentially double FICA (that is, the employee’s portion AND the employer’s portion). We pay this on all of our income (including housing allowance or fair rental value of the parsonage) while only paying federal income tax on the salary portion of our income. The government helps us out by making us only pay SECA taxes on about 93% of our income (essentially deducting the half that an employer would otherwise pay). I think this just underscores how insane clergy taxes are, although as I’ve said the spirit of the post is right on.
I should add that when I say “income tax,” I mean income tax as it is popularly understood. Of course any tax comes out of your income, but theres a difference in terms. Sorry if thats doubly confusing!
Thanks for the clarification, Dalton!
Thanks for an excellent post, Jeremy and for the clarifications, Dalton. The shift feels like a step (albeit painful) in the right direction, but it needs to be partnered with adjustments to the rest of the tax code. My question is who will champion that.
When all of this was explained to us at Duke in the 1990s it seemed to me that some of this was United Methodist specific. Being self employed for Social Security status was a kind of punishment because the church did not at first opt to participate in Social Security. When the church changed its mind the government said, ok, you can come in, but only if you file as self employed. The crazy dual employed/ self employed status also has some factors that were unique to United Methodists. Clergy with “congregational” polity look self employed because no one appoints them, but the UMC had been giving elders “job security” with the guaranteed appointment, and other benefits like our pension plan. Occasionally a UMC pastor who filed as self employed was audited and the determination was that the individual in question looked to be employed – and generally the pastor agreed and quietly refiled the taxes. But in the 1990s one pastor took it to court posing the question “who is my employer?” the local church? the Annual Conference? As I remember it the judge decided that he didn’t have to determine who the employer was, but ruled that UMC pastors are employed – and from then on we’ve had to file the dual status.
So I’m no tax expert, and its taken me years to begin to understand the mess that is clergy taxes. But how are we receiving an additional burden? We file self-employment taxes, basically meaning that we pay both sides of the employee/employer taxes. If the law changes and we can stop filing as self-employed, would that affect our salary? I’m asssuming that part of our salary package that we normally use to pay our quarterly taxes would get shifted to the church using those funds to pay our taxes. I’m assuming that we wouldn’t actually see any change…..but like I said, I don’t really understand what I’m talking about. It would look like a cut in our salary because our salary packages would change to compensate for them, but it wouldn’t actually change what we’re actually seeing in income. #stillconfused
John, the problem is that only ONE of the wrongs is being removed: the tax benefit. The tax burden of being forced to file as self-employed is still on the books. Until that changes, we will have an undue tax burden.
While we still have enough left in Christendom to have champions in Congress, I’m not going to hold my breath that Congress won’t put enough poison pills in such a bill that it would not pass. That’s the New Normal these days.
So what you said is correct; but it’s not a legal reality until Congress acts.
One thing that’s going to exacerbate this problem considerably is the fact that many Methodist parishes either sold off or rent out their parsonage. Each parish should own a parsonage and REQUIRE the pastor to live in it, regardless of how humble it is (many of the parsonages were sold off because clergymen objected to them; they were nice houses in the 1950s but by contemporary standards many of them lack AC, or are in less than perfect neighborhoods). As I see it, requiring the clergy to live in the parsonage ensures a certain modesty on the part of the clergy. When clergy retire (and there should be no mandatory requirement age), the church at that time ought to procure for them a modest house of similar proportions. I also would not be opposed to requiring unmarried clergy to live together in group accommodations in the manner of Roman Catholic canons. The decadent nature of most Methodist clergy can be inferred from the fact that, in contrast to the Roman and Eastern churches, *none* of them take vows of poverty.
“The decadent nature of most Methodist clergy can be inferred from the fact that, in contrast to the Roman and Eastern churches, *none* of them take vows of poverty.” Wow. Talk about a hyperbolic inference that cannot be drawn.
That’s not true. A substantial portion of Roman Catholic clergy are Franciscan or Dominican friars, or Canons Regular, that live according to monastic vows and take a vow of poverty as part of their orders. In like manner, a number of Eastern and Oriental Orthodox priests are hieromonks, that is to say, monk priests; although in the Eastern churches the monasteries are not organized into formal orders in the manner of the Roman church; all hieromonks take a vow of poverty as part of the process of being tonsured a monk. In fact hieromonks are monks that have been monks for many years and have been ordained. Now, while just a few years ago a Methodist convent for women did open in Minnesota, , there are no Methodist hieromonks or friars at present, living apart from the world in an organized cenobitic system, under vows of poverty, chastity, obedience, stability and conversion. There are a few individual Methodist pastors who make personal ascetic vows, and they are to be honored, but no friars or hieromonks. All Methodist pastors are, from an ecclesiastical perspective, the equivalent of secular canons or regular priests.
In an ideal world, at least a third of Methodist clergy would be under such formal vows, with the remainder limited to married secular clergy, in the manner of the Eastern churches (where all clerics are either married or tonsured hieromonks). In this manner, the presbyterial office would have the required dignity, and at the same time some married pastors would exist who could assist married couples with the specific religious problems that they encounter.
The reasons the clerics didn’t want the parsonages is simply these – churches didn’t give the pastor and family any privacy – every parsonage dweller has stories of parishioners “walking in like they owned the place” because they did own the place and don’t you clergy and clergy family forget it!!” Second, this being kept looked good on paper – but it was always accompanied by a low salary – after all we pay for your housing!! But not enough for the pastor to buy a home for retirement. The pensions paid for by those churches were paid only on the low salary!! guess what – when they retired – the clergy had no equity, little money – and no home!! I saw too many homeless old parsons to settle for that! “the laborer is worthy of his/her hire!”
I went to the installation of a pastor in such a church – and in the service – a deacon said I’ll offer that old prayer of our tradition: God please observe with kindness, this your poor and humble servant rev…., You keep him humble, Lord, and we shall keep him poor. In the name of him who had no place to lay his head.” Amen
By the way, I must also harshly criticize this remark by UMJeremy:
“You woulda thought that Pope Francis hit the Methodist Council of Bishops in the face with an Episcopalian thurible while singing “In Christ Alone” from the Presbyterian hymnal.”
This failed attempt at humor makes a complete mockery of the ecumenical activity of the UMC, which is at present in full communion with the PCUSA, the Episcopalians (but not, alas, the ACNA) and is in an improving ecumenical situation with Rome.
Sorry Paul, the UMC is not in full communion with the Episcopal Church. Talks are ongoing but it hasn’t happened yet.
My mistake; we are in communion with a number of other fallen mainline denominations, so it was an easy one to make. We ought not to be in communion with any of them; the only churches we should be pursuing ecumenical relations with are the ACNA, the PCA, the Roman Catholics, the Eastern Orthodox, the Oriental Orthodox, the Assyrian Church of the East, the Mission Province of the Church of Sweden, and the Polish National Catholic Church. There is a great danger in the fact that we officially endorse some of these churches which have fallen into insurmountable heresy.
Whoa. The UMC Is in full communion with the ELCA. I can assure you that many ELCA clergy are as unhappy about that as you seem to be with your full communion agreements. I always thought the UMC was a rather sectarian group anyway. You’ve certainly confirmed that. But thanks for helping me see that the UMC is to blame for the current clergy tax mess? That IS what you’re saying, correct?
I laughed, so by that standard, it wasn’t a “failed attempt at humor.” Please lighten up a little, Paul. BTW, although some people have publicly referred to this as a “despicable blog,” I find it anything but. 🙂
Peace,
David T
Actually, the UMC and the PCUSA are not in full communion, even though we sometimes have combined congregations and use the same seminaries. Other doctrinal differences still prevent full communion.
I’ve always heard that congress would protect the housing exemption because of the other group that receives it. Military officers.
It will be interesting to see if that comes into play.
I’ve heard that one too. But I think that would be bad because they shouldn’t be related. Military tax exemptions and clergy ones aren’t the same thing, or at least they shouldn’t be.
Giving benefits to members of the military does not counter the constitution, while giving benefits based on religious belief is counter to the constitution.
But what it does do Chuck is establish as a principle that the housing allowance is not a religious exemption. Rather it is an exemption based on the idea that housing allowances are are not part of the salary or earned income. Because of the transient nature of ministry and military service the need to provide housing as part of the service is necessary.
I agree in general that a housing allowance could be defined for all transient people, and something like that would be constitutional. But the rule referenced clearly limits the applicable people to ministers of the gospel. No matter how you slice it, limiting it by religious belief is unconstitutional.
Good post, Jeremy. I don’t know that I agree with you that the housing allowance/exemption is unconstitutional. Or that the atheists were fair in their forum shopping to find just the right judge to overturn the law. Whether the argument holds water at the 7th Circuit, which tends to be more conservative, will be a different story. Certainly our Supreme Court will have difficulty overturning the presumption in favor of the law’s constitutionality. Here’s why I think so: The First Amendment prohibits the explicit establishment of a state religion. It does not necessarily prohibit implicit support for religious institutions or their mission through refusal to tax religious housing. Moreover, more and more, the Supreme Court is reflecting upon the establishment clause and allowing religious free exercise, even on public lands, for example. I realize that this point could be debated and argued till we’re blue in the face.
Do I think the housing allowance/exemption is necessarily fair? No, it’s not. But our tax code isn’t fair in all sorts of ways. It favors homeowners instead of renters. That’s not unconstitutional, but it’s not fair either. So I question the “standing” of these particular taxpayers to bring this case at all.
I disagree with your understanding of the 1st amendment. It does not reference establishment of a state religion, or a specific religion. It says “recognizing the establishment of religion”. Not “recognizing the establishment of a religion”. Leaving out the article makes the reference general rather than specific.
I think the the requirement of equality requires the broader interpretation. A government that could give religious people a special tax benefit could also give them a special tax burden.
The text actually reads, “respecting AN establishment of religion.” In the proper historical context, “establishments of religion” were either state-sponsored churches under independent administration or churches that were administratively subservient to the state. Contemporary examples included the Church of England, the Church of Scotland, the Dutch Reformed Church, the Lutheran church in Scandinavia and most of the northern German states, and the Roman Catholic church and Orthodox churches in much of the rest of Europe. The American colonies had state-sponsored churches that maintained their respective relationships into the early decades of the republic. So the First Amendment both restrained the federal government from selecting an official, national church as well as from interfering with existing relationships between “established” churches and their respective, individual states. It was NEVER intended to prohibit a general support of religious institutions… only to prohibit support that favored one or several over others. The founders were all too familiar with the religious wars and persecutions waged in Europe, and were determined not to replicate those forms of church-state relations
Because of our tendency to read our founding documents without historical context and devoid of the meaning of words and phrases ascribed to them by their authors, we have somehow come to the complete misunderstanding that the First Amendment requires government to stamp out all expressions of faith from the body politic.
Through the courts, we also get to decide what the words mean. So we can choose to make it forcibly neutral. I think that is the only way to be truly equal. Otherwise, the current religious majority will always take special privileges at the expense of the religious minority.
Secondly, I haven’t seen any Supreme court ruling that would favor giving a real tax benefit based on religious belief. You might be able to argue ceremonial deism for a prayer, but giving money to some but not others will not fly at all.
Chuck, that’s precisely my point. The framers had one thing in view, but we have contorted that view into something else by ascribing to their words and phrases entirely different meanings. Bizarre, isn’t it, how we “get to decide” what someone else meant. Taken to its logical conclusion, this is one path to arriving at a place of calling evil good and calling good evil.
There’s little doubt that this case will be brought to the Seventh Circuit Court of Appeals, which, incidentally, reversed the same Judge Barbara Crabb’s prior ruling that the National Day of Prayer was also unconstitutional. (Perhaps, just perhaps, church-state relations aren’t Judge Crabb’s areas of strength.)
I actually disagree that changing the SECA to FICA would fix much – our churches would then have to pay the employer share, and they’d likely do that by reducing our compensation. Not many churches could afford to give us a 7.65% raise to their clergy, which is what that would amount to. Being employees for Social Security purposes would really only change the bookkeeping, not the bottom line. I just wrote a post on the housing allowance case, and my last paragraph deals with this a little bit more: http://asingleeye.wordpress.com/2013/11/24/the-clergy-housing-allowance/
And I would also suggest that your history is a little off – the housing allowance came about in 1956 – before clergy were even allowed to participate in social security. To suggest that the housing allowance is supposed to offset our extra SECA costs is just not true given the history of the housing allowance.
You know, I think I have a solution to this problem that might rather help, that wouldn’t work everywhere, but might work in several parts of the country.
In certain regions, the UMC would no longer pay pastors a salary. Rather, pastors would live entirely in UMC provided housing; eat UMC provided food, and use UMC provided cars. The accomodations would be simple but comfortable. Celibate clergy would live in monastic friaries. Married clergy would live in parsonages. A stipend would be paid for the maintenance of the children, and the wife, if the wife was not otherwise employed. In areas with UMC operated church schools, those schools would educate the children gratis, and the children would also have free tuition in any one of the UMC’s vast fleet of affiliated universities.
This would impose a condition of ascetic, monastic simplicity upon UMC clergy; in this manner we would not suffer the ecclesiastical embarrassment of having priests driving around in expensive new cars and living in McMansions, who then go on and lecture us about the virtues of socialism.
In your vision of this UMC utopia, who takes care of the pastor’s husband when the minister is a woman? And, are you a clergyperson who’s willing to be a part of this? Maybe you’re just willing to provide food for this collective.
In my last line, I meant to say, socialism, generosity, charity, anything of that nature. My point was that we would avoid the appearance of hypocrisy; I was not trying to take a jab at left-wingers.
There are many liberal Christians who I much admire, for example, Kallistos Ware, and indeed my own godfather, who was a Lutheran priest who was socially very liberal (although he was theologically conservative).
I do not have any problem with political liberalism; IMO the church should be strictly apolitical. I do have a problem with theological revisionism and theological liberalism, but John Chrysostom, who I view as one of the greatest saints of our history, exhorted the wealthy of Constantinople to give away a huge chunk of their vast holdings to pay for a network of free schools and hospitals, as did his illustrious predecessor Basil the Great. The result was the first system of its kind in the world; of care facilities that actually took care of people at no charge. Clearly Christianity in action. The greed of some contemporary Christians, sadly, many Protestants included, even Methodists, horrifies me.
Caesar needs to keep his hands out of the offering plate. Free societies do not tax Natural Rights (Religion, Speech, Press, Assembly, Property). Essay >> http://wp.me/p2KckS-1td
Caesar does not tax the offerings made at the plate. In fact, Caesar gives churches numerous tax exemptions. It is simply taxing one person’s income as it does others. Whether or not we think the tax code is unfair to ministers is not justification for one group of people to enjoy society’s benefits completely tax free.
So you are in favor of the total state? And don’t believe in separation of church and state? So government can coerce church–but church can’t even speak to government? A name for that–feudalism.
The one thing I disagree with is the desire that FFRF file a suit on behalf of churches to fix the self employment requirement. In order to file suit, you need to have standing. Members of FFRF would not have standing to fix the requirement since the requirement does not apply to them. In order to have standing one of the plaintiffs must have direct injury. It will take a minister forced to file as self employed to be a plaintiff.
Still, thank you for writing this. As an outsider, I did not know the details of minister tax law.
It seems to me that the long-term fix here is to consider ministers as church employees both for income taxation and for social security/medicare.
This would take care of the First Amendment issue involving taxpayer subsidization of religion. It would also take care of the self-employment taxation issues for clergy.
2 minutes ago · Like
a conference treasurer here, with an important clarification:
the parsonage exclusion was not changed, only the housing allowance exclusion.
the parsonage exclusion means a clergy person does not have to pay income taxes on the rental value of the parsonage a local church provides as a condition of employment. UMC clergy do have to pay SECA taxes on this rental value. other non-secular employment positions (state department, oil riggers, etc.) who are required by an employer to live in a specific place as a condition of their employment also are exempt from income taxation on the rental value of this benefit (but i don’t know how their SECA is handled). The FFR group challenged the parsonage allowance but that part of the lawsuit was dropped and is not addressed by the ruling.
what is addressed from the ruling is the “housing allowance” the ability for a clergy person to declare a part of their compensation non-taxable (up to the market rental value) because they spend it living in the house of their choice (not the employer’s choice). that income would no longer be excluded from taxation if the current ruling stands. there may be other professions that get to declare by vote of the board of their employer a specific amount of income as income tax free, but i don’t know who that would be.
the decision as it stands only applies to clergy in Illinois, Wisconsin, and Minnesota, only after the dedlines for appeals are expired; and only those with “housing allowances” and not living in parsonages.
Your post title led me to think the post would be about the vitriol the secular/political websites have collected against religion and ministers. it was saddening to read such anti-church sentiment and the treatment of all clergy as political opponents who’s additional taxation is to be celebrated. the progressive christian is no longer suspended between two strong movement/traditions but is gripped in an angry vise of built-up resentments. the sensationalist right-wind “clergy” who’ve hijacked christianity will cost us a generation of souls.
I’m reading all this 2013 blog and comments in 2017. Still true EXCEPT that Clergy don’t really pay 15.3% SECA because you can see on the IRS Form 1040 Schedule SE that the net profit (taxable amount) is reduced by about 8% and the SECA tax rate (now 15.3%) is applied and then right after it is reduced to 50% of that. So they are paying only about 7.65% just like the rest of us employees pay for FICA. Well actually .92 * 7.65% = 7.038% for their Social Security Retirement and Medicare taxes. So I don’t think IRS via SECA is being unfair to clergy at all.