Federal Judge Orders an End to Parsonage Exemption Which Could Cost Clergy, Churches Millions
by Monte Sahlin
By Adventist Today New Team, November 25, 2013
A United States Federal judge in Wisconsin has decided in favor of a lawsuit initiated by the Freedom From Religion Foundation and ordered an end to the parsonage exemption for clergy. This is a provision in the income tax law, one of literally thousands applying to various occupations, business activities and specific circumstances that makes tax law in the U.S. one of the most complicated in the world. It dates to a time when some churches owned a home which was provided to the pastor rent free. At the time the exemption began the rental value of some of these homes was such that if they were computed as income it would create an impossible tax burden for the clergy involved.
The foundation has the purpose of removing all items from Federal and state law that apply only to religion on the theory than any such provision is a violation of the First Amendment to the Constitution, specifically the "establishment clause." Although historically this clause has been understood to prohibit an established church in the U.S. such as the Church of England in the United Kingdom or the Lutheran Church in Scandinavian countries, the foundation argues that it should be extended to prohibit chaplains in the Congress, for example.
Clergy have a very complicated tax status. The parsonage exclusion means that the cost of purchasing and maintaining a home (mortgage payments or rent, utilities, etc.) is removed from the calculation of the taxable income of clergy, but this does not apply to the Self-Employment Tax that clergy must pay because denominations and congregations do not withhold the tax for Social Security and Medicare nor pay the employers half of the tax. Clergy are also prohibited from taking a home office deduction because of the parsonage exclusion, despite the fact that almost all of them have their primary office in their home.
If it is upheld on appeal, Religion News Service estimates that it will decrease the "take-home pay" of clergy of all faiths across the country by five or ten percent. The judge has ordered a stay on the actual enforcement of the decision until appeals are exhausted which means that it could be several years before this happens and the Supreme Court may reverse it entirely.
There are 44,000 people employed as clergy across the country. The vast majority of clergy are actually not included in this number because Catholic clergy live under a vow of poverty and are not treated as employees and the largest number of Protestant pastors are paid minimal stipends by local congregations, while other faiths and some Christians are unpaid volunteers. The clergy included in the figure above from the U.S. Bureau of Labor Statistics (BLS) had an average income last year of $47,880.
The Seventh-day Adventist denomination employs about 3,500 clergy in the United States. The current pay scale approved by the denomination's North American Division is a little below the average reported by the BLS. Most local conferences spend 35 to 40 percent of the Tithe Fund on clergy remuneration and benefits. If the decision is upheld and implemented, it will cost either the denomination or the Adventist clergy families a total of nearly $16 million a year.
If local conferences adjust wages to make up the loss, it will cost each conference in the U.S. an average of about $300,000 a year. In many cases that would mean five or six fewer pastors in the field and more local churches in districts with four or five churches assigned to each pastor.
One argument in favor of the decision is the idea that the government is in effect subsidizing religion with the clergy tax break. At the same time data from a number of sources, including the Faith Communities Today (FACT) research demonstrates that clergy-led organizations make a far larger contribution to the safety net for the poor, the aged, disabled and disaster survivors in the U.S. If religion is entirely removed from the picture, the cost to the taxpayer is many times greater.