Federal Judge Rules Against Parsonage Law

This talk is based on §107 of the Internal Revenue Code, which provides that housing allowances provided to religious leaders is not counted in his or her gross income.

A Federal Judge in Wisconsin has ruled that the parsonage law of the 1950’s is unconstitutional because it isn’t fair to secular employees, who could also benefit from this huge financial tax break every year.  Housing allowances paid as part of clergy salary can be subtracted from their taxable income. The Freedom from Religion Foundation argued that a clergy member can use the untaxed income to purchase a home, and then, in a practice known as “double dipping,” deduct interest paid on the mortgage and property taxes.

According to the IRS, this translates to a large tax benefit.  In simplified terms, many religious leaders are given a housing allowance by the church, synagogue, etc.   For example, a church might own a furnished house, and the minister would live in it with his family.  He would pay no rent, and all the utilities would be paid by the church.  Normally, when a person is afforded such a benefit, the value would have to be recorded as wages or another form of taxable income.  But in this case, it is not part of the picture at all.  Not only is it tax free, but the adjusted gross income is significantly reduced as well, putting the minister into a much lower tax bracket while eliminating the expense of housing.

The benefit saves clergy, including non-Christian religious leaders, $800 million a year in taxes, according to the latest estimate from the congressional Joint Committee on Taxation.

The issue is that that a clergy member can use the untaxed income to purchase a home, and double-dip because he would be eligible for the tax credits and deductions that are available to home owners.

According to the Congress’ Joint Committee on Taxation, the benefit saves clergy – all types of religious leaders – $800 million a year in taxes.

 

Here is the Clergy Clarification Act of 2002, published on their website

 

The judge says that the law is unconstitutional because it isn’t fair to secular employees who could also benefit from a similar tax break.

 

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Renee Schweke

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