Wineke: Thanksgiving ruling on pastor taxes will change churches
Federal Judge Barbara Crabb just issued a ruling on clergy tax benefits that promises to undermine the finances of pastors and churches all over the country — and no one seems to have paid much attention.
That being said, her ruling was probably the right one even though it will have devastating consequences.
Since 1954 clergy in this country have benefited from a nice tax deduction.
If they own their own homes they can deduct from their taxable incomes the value of their housing. If a pastor earns $50,000 a year and gets a $2,000 a month housing allowance, they pay taxes on $26,000 of income. And then, that same clergy can deduct from the $26,000 the amount paid on taxes and interest on the mortgage. It’s called double-dipping and it is legal.
At least, it was legal until Crabb ruled it unconstitutional.
The reason for the deduction is that, until fairly recently, clergy tended to live in church-owned housing, called vicarages or parsonages. They didn’t pay taxes on that housing and neither did the churches.
It was kind of a mixed benefit. Not all those parsonages were homes that pastors would have chosen for themselves.
When the pastor in question reached retirement age, they had no equity built up in a home. So, increasingly pastors bargain for housing allowances rather than live in parsonages. The tax benefits are best for clergy serving affluent congregations since they can afford nicer and more expensive homes.
Members of the armed forces often face the same dilemma. And, I believe, they receive the same tax benefit.
What Crabb has done is to rule the housing allowance tax break unconstitutional since it clearly gives a benefit to religious organizations and their clergy that non-religious people do not receive.
It is a benefit I receive because I am a parish pastor, and it is a benefit you do not receive unless you are a parish pastor. You, then, are helping subsidize my salary. If you don’t think that is fair, then you agree with Crabb.
In my heart I agree with Crabb, too. In my wallet I don’t. Her ruling will cost me a couple thousand dollars a year. If the ruling stands, I will have to pay more in federal income taxes next year than I will this year.
I earn a decent salary and, though I don’t want to pay more taxes, I do find it hard to justify getting tax breaks unavailable to my friends and brothers, most of whom do at least as much as I do to create a better world.
There are problems with the ruling, however, and those problems affect not so much people like me but clergy serving smaller congregations that may be struggling to survive. Ideally they would pay their pastors more to make up for the increased tax burden, but many of those churches have a difficult time paying even part-time pastors.
And Crabb’s ruling leads to some real questions for clergy living in parsonages. Will they be taxed on the value of their housing (actually, if I understand IRS rules, they already pay Social Security taxes on that value)? And how do you determine the value?
Some church guidelines estimate the parsonage is valued at 30 percent of the pastor’s cash salary. But many of those parsonages are worth nothing of the sort. The ruling is going to make it harder for poor churches to survive and for their pastors to remain in the ministry.
So there are lots of questions involved, and I haven’t had the opportunity to actually read her ruling. But so far I haven’t really been able to come up with a credible reason why she is wrong.