Federal Judge Rules Clergy Tax-Free Housing Allowance Unconstitutional

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This ruling paves the way for a legal challenge to the 60-year-old law permitting pastoral housing allowances.

A federal judge in Madison, Wis., ruled last week that the tax-free housing allowance for clergy, protected under a law passed in 1954, is unconstitutional and violates the “establishment” clause in the first amendment to the Constitution. This ruling paves the way for a legal challenge to the law itself permitting pastoral housing allowances.

The lawsuit was filed by the Freedom From Religion Foundation and was ruled on by U.S. District Judge Barbara Crabb. The FFRF maintained that the law allows pastors to use untaxed income to purchase a home, then deduct interest paid on the mortgage and property taxes. “The exemption provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise. This conclusion makes it unnecessary to consider plaintiffs’ equal protection argument,” wrote Crabb in her decision.

According to The Christian Post, pastors are not happy about the decision. Doug Webster, pastor of The Following church in Lake Forest, Calif., commented, “My life as a pastor is special and significant but rarely secure financially. Ministry is already taxing enough. Bleeding a few hundred dollars more monthly from me is a sad commentary, especially if the motivation is greed, envy or pride. I will render unto Caesar what is Caesar’s but I advise prudence of sitting judges to encumber the keepers of the spring. Where will the village turn for counsel, support and prayer when the entire community has turned brackish?”

Pastor Chris McCombs of Broadman Baptist in Cuyahoga Falls, Ohio, agrees. “If statistics are true, most of us (pastors) worship on any given Sunday with 100 or less people in their congregation. They are not paying their pastors big bucks, they just don’t have that kind of money … What the atheist group doesn’t realize is that it’s not about religion. They are hurting an actual family.” 

“This could be the beginning of a first step towards taxing the church.” said McCombs. “I see this as a domino effect. If this doesn’t get overturned now, it will hurt the individual pastors who do not make a lot of money which are the vast majority of them.”

The total of tax-free housing allowances for clergy is estimated at $1 billion annually.

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  • Brian

    It’s not about helping Pastors who don’t have much money. It’s about what’s right. And I have to agree that the housing allowance really shouldn’t be tax-exempt. Regular people use their own income, after taxes, to pay for their housing. Currently, a Pastor’s main income is taxable. So why should we be entitled to an extra bendefit that no one else is? Sure, it helps those pasor’s and our churches…but that’s DEFINITELY against the 1st Admendment, isn’t it?

    • mcrchap

      It’s not a real big deal. When it’s all added up, most of us could only deduct 15%of the total anyway. Maybe we (I) should not cry.

      • Ralph

        Maybe we, all of us, are paying more taxes than we should given all the taxes, local, city, county, state, federal along with all the service fees and pensions for public service support… The more you expect the more it will cost…

    • Why the hate?

      The issue is the dual status position. A pastor pays Social Security as if he is self employed, and income tax as an employee. The extra Social Security tax is balanced by the housing allowance. Remove the housing allowance, and pastors should not be considered self employed for Social Security. The housing allowance is also available to ALL religions, therefore it has nothing to do with the First Amendment. The term “separation of church and state” is not in the Constitution, even though many think it is. It says, “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof;” A Catholic, Muslim, Baptist, Presbyterian, Episcopal, Methodist, Buddhist, Hindu, Pentecostal, etc…would all have the same benefit. Therefore, it is not a violation. Now, is if a violation to treat a pastor differently for Social Security purposes than he is treated for income tax purposes?

      • Brian

        Unless the church pays into SS for the Pastor (they don’t), then that money should come out of the Pastor’s salary, since said pastors can, and do, collect SS once they retire.

        • Ralph

          As a pastor I am responsible for the full SS tax whether or not my church pays the employers part…

  • jimtheyouthguy .

    I find it easier to just pay my taxes. No special deductions, allowances, justifications or rationalizations. I pay all the taxes on all the income so no one has any say on anything I do with the remainder. As long as it is tax exempt, there are strings attached. I’d rather be poorer yet free

  • Iglesia Dominio

    I think the interesting thing is does this go for the Catholic Church as well? Or only protestant?

    • Fernando Villegas

      I don’t know why it wouldn’t apply to the Catholic Church as well. After all, that is that point that is being argued.

      • Iglesia Dominio

        Did you not know that the Roman Catholic Church has treaties with countries? I guess the way around it is buy the house in the name of the ministry. Then it is a parsonage.

        • Fernando Villegas

          Yeah, I’m aware that the RCC is not only a religious entity, but a political entity as well. I’m not familiar with how housing works in the RCC, so perhaps there are ways they could get around it. But the argument made is that the tax-free housing allowance is not available to anyone else, thus making it unconstitutional. So, if employees of the RCC provide for their own housing, then I imagine the argument applies to them as well.

          Of course, as in all things legal, things are often complicated and people allows find loopholes!

        • pjsr

          If this goes through, every minister who lived in a parsonage will have to pay tax on the fair rental value, amount paid by the church for utilities, etc.

  • Craig Piefer

    Every time I hear about a Pastor buying or building an extravagant home I think to myself, “We are one step closer to loosing our housing allowance deduction.” Sure it will cost me and my family, but since we live modestly (6 of us in an 1,100 sq ft home) it won’t hurt that much. Plus by the time congress will get anything done I’m sure I’ll be completely burned out on being a pastor and be selling fruit at intersections. :-)

    • mcrchap

      Craig, the only guy I heard that did this is “Purpose Driven” Warren. If I’m correct, He lost when he tried to take his whole salary as a housing allowance. But his book was so successful he works for free now.

      • Always Wondering

        Steve Furtick is the latest.

      • Craig

        Rick Warren still lives in the same house he bought when he moved to Cali and drives a 10 year old f-150. Warren is not the problem, he is the example of what a Crazy successful believer should do.

  • Morton

    The problem here is that it’s going to nail some ministers far worse than others, due to the cost of living being much higher in some areas than others. In some cities, a $250,000 house is very modest, yet that would be THE biggest nicest house in other areas.

  • David D

    How can we revisit an established law?

    That being said? I don’t think pastors or churches should be given tax free status.

    If were going to be able to speak our conscious without restraint we need to be able to do so without being held ransom by the gov

    • grest point

      I agree I heard a national teacher say. Quite possibly one of the greatest things that could happen in the U.S. would be to remove the tax exempt status of the churches. It would lead many to find churches where God is actually moving and to promote more mature disciples. Granted a few religious organizations would stand but it’s likely the most would close leaving Christians to seek out churches where God is moving amongst and through the people within. God will provide for those, the removal of the tax exempt status would make it much harder for those to survive that do not have the blessing of God and that’s a good thing. I agree

      • sorry to offend

        go ahead
        vote it down while I sure would not agree with everything Andrew wommack teaches who made the statement. In His series on discipleship. Which proves many churches are not making disciples according to biblical mandate and standards it is likely nonetheless the truth and Gods leaders will answer for it most assuradley.

      • mcrchap

        The matter of tax exempt status of the churches is very different from the clergy housing allowance. The clergy are not tax exempt at all. The that DEDUCTION that the ruling is against is the amount clergy can exclude from compensation because it is used for providing a home for him and his family. Tax exemption for churches is the matter of no taxes for church property (usually the property and building used for worship, not any properties owned in other locations) and tax exemption on the income from tithes and offerings from business taxes. Churches do and should pay taxes on money derived from non-ministry related income (like fundraisers or rents,). These must be properly registered with and paid to the IRS, state and local governments.

    • Iglesia Dominio

      well be aware that according to IRS a CHURCH where the purpose is for assembly is NOT required to be IRS 501C3 to be tax exempt. It is “optional”. This is a myth which many have bought into.

    • mcrchap

      How? By taking it to a Federal Appeals Court. If they sustain it, the matter is dead. If they strike the ruling down, we win. If it is sustained then with a lot, a lot, A LOT of money it can be passed on to the Supreme Court where it MIGHT see the light of day in the next decade.

    • Ralph

      Who says we cannot speak our conscience? I speak it every time I preach or teach, but it is more than my conscience, it is the Word of God that rebukes, corrects and trains the people so we are equipped for every good work. It is only through the Gospel of Jesus Christ that salvation is offered and lives are changed. Do I need, from the pulpit, to decry this or that politician? No, and still get the points of God’s clear Word across to my people. If I have an issue with a politician or policy that goes against God’s Word then I will write that person as well as speak to that issue as it comes up in our teaching or preaching.

      The thing about this so-called ‘tax-free’ status is that I do pay taxes on my income and the church does report it’s contractual expenditures and it deducts taxes from paid support staff. And somebody will say, “But the churches do not pay property taxes.” But churches everywhere have been a gift to the communities they serve in and help to care for the poor and those in need much better and with much less over head than the government and for greater and lasting results. Everything government has it’s hands in always cost more than they plan and accomplishes less than people hope for. That is why we are in such a sorry place in our cities and hope is fleeing.

      Another thing about churches is that monies taken in are after tax contributions. These are monies from which taxes have already been paid. So to tax a church is really government double dipping and creates a huge disincentive for people to contribute for the spiritual and social needs that are out there.

      Now, having said this, “give unto Caesar what is Caesar’s and give to God what is God’s.” I have a feeling that you do the latter and the former will be taken care of and there will be plenty to go around! Actually God’s Word tells us this, too! Merry Christmas!

      • Ryan

        I go to a restaurant and pay for food with taxed money and both the business and those who work there are taxed for what I hand over for food. The government wants to tax any exchange of money that is considered an income to the next guy. Also I am taxed on the food I pay for. Now that is really quadruple dipping… I’m taxed first. I pay sales tax. the business’s income is taxed and those who work who earn and income from the business are taxed. From the time I’m paid and taxed till that money goes for sales tax, business tax and those who earned it are taxed , almost 50% of the initial money is taken(stolen) by the government through taxing. The thing is the government hasn’t lifted on finger to earn any of that. Don’t think too hard on this.

  • Doug

    Certainly this is an indication of the dimmer view of the Church, pastors and the cause of Christ taken by the world around us. But God’s hand is not empty so He will care for us, Pastors. The best thing a pastor can do is try his best to buy a house of his own and get out of the parsonage. A parsonage is a losing proposition all the way around. It’s better for the churches too. One plus is that when a pastor owns his house it’s not so easy to pack up and leave a charge when the going gets rough. And, it alleviates the pressure of having to ask permission to paint a room any color your wife wants! Free yourself, or ask your congregation to help free you (a second mortgage?) free your church from maintaining a building, become a more committed, permanent member of the community, get at least the regular interest deduction on your investment.

  • David Bennett

    A reminder that Priests within The Liberal Catholic Church receive no stipend whatsoever, and conduct their Priestly duties with no payment whatsoever. This is also stated when a Priest enters this genuine people caring CHURCH. The Church members and all others come first before self. This has been known for many years that Priests from other Churches such as The Anglican and Roman Catholic Churches get a stipend (wages) and free housing. Members of the Liberal Catholic Church enter as a true vocation and each has to conduct themselves accordingly paying their own way, with no financial assistance from any source. That involves absolute and caring commitment, empathy and Christian love to ALL, not a selective few who have to attend Church a number of times prior to receiving Mass or other Christian Services. May this Church always remain so.

    • mcrchap

      It is also known that the caring church stocks the pantry, furnishes the house, the car, the insurances, the vestments, and all he needs plus (I don’t know what the proper term is) a determined amount of what I’ll call “spending money”. The RC priest has no family to care for. In independent protestant churches, the pastor buys his own clothes (and unless they were vestments could not be deducted as ministry expenses) his own books, car, sometimes his own gasoline, ,,, he bears alot of his own expenses and he cares for a family as well. No complaint on my part; just facts. Definitely you’re not comparing apples with apples.

  • Pastor Chip Miller

    It I,s absolutely absurd. I am appalled that this judge would side with the anti church foundations. As a pastor it has been a blessing to be in the service of our Lord Jesus Christ. A Natural Born Citizen is one who’s both parents were Americans by birth. No one has brought this unknown law to attention concerning the residing …………. He was ineligible in all ways to reside as president.
    Now they want to take away our liberty to serve with one less distraction and now tax us on a BILLION dollar (Their words) industry.
    The domino’s are rolling and it is interesting they want to ” Merry Christmas” to happy holidays. Take the memorials of our religion out of all government establishments.
    HMMMM! I watched as His wife shared about the many Christmas trees and gifts and gingerbread house that weighs 300 lbs. They commented on the 70,000 people who will visit the white house this “Christmas season”
    Is our government exempt from what they will incarcerate us for if we do the same. It isn’t a paradox. It is a blatant display of thousands of dollar’s wasted in a place where lying and deception are the norm.
    Sorry but all I can say is Maranatha know it will be soon and all those shall have their place in the lake of fire. When will we rise and realize it is our responsibility to correct and check our government when they have gone astray from our principle foundations and belief’s. That this country was founded on., We are Not one nation of many religions, We are one nation Under God the father of Jesus the Only begotten son,

  • David

    Further to my last comment. I also wonder if this is a deliberate attempt by both the USA and UK in collaboration to weaken the most effective establishment other than Parliamentarians to really stand up and speak for the people!. It seems Hesse days the Electorate are being dictated to, and if failure is imminent what Government want, then crush them with the weight of the scales of Justice. What I see is not Justice being seen to be done, but Justice being inflicted upon ALL presently. The Church and most honest Pastors / Priests fully committed to their flocks are the ONLY establishment now available to stand up against repressive laws and those passed to seemingly abolish the Christian Church. When things go wrong even Atheists have been heard to say, “Oh! my God”. However to the point A Priest should be the first to display Humility…. That means being equal to ALL and lesser / better than none. Thus enabling all to be equal in taxation!. We will see.

  • Ryan

    If one takes a look back at the bigger picture of things when this country and its leaders were more Christian, they saw the value of pastors and churches as places that taught society good morals and ethics that kept down criminal behavior and was good for the family. With good moral and ethical people in society, you don’t have the need for bigger government and judicial system to control and correct people. So the tax exempt status for churches was an investment in a moral, ethical society that won’t need as much policing and cuts the cost of running government. This has been forgotten and now with fewer and fewer people going to church, the morality of this country has gone down leading to the need for more and more laws, police and government. Some may say this is being done on purpose. It may but I doubt so. Everything we are seeing happening is just the result of immorality and poor ethical behavior with the people of this country as a whole. Now we see why God created government. Government is there to force their morality and bring judgment to people who forget God and refuse to follow God’s ways by choice. We as a country are slowly but surely being taken by our own overall evil ways. God isn’t going to lift one finger to judge us. We will bring our own judgment on ourselves. Just look at what we got for a president and congress. People voted in their own judgment.

    • Brian

      It’s not the government’s fault. It’s the fault of the Church. God gave US the command to go into all the world and bring the Gospel to all. WE are the ones that haven’t done so, and that’s why our country is going downhill. Most people in our own churches that claim to have a saving relationship with Jesus Chist don’t even have a basic Biblical understanding of morality. It’s no wonder the people outside of our churches do not!