FYI for clergy who own a home

[Whereneverever]

http://host.madison.com/news/local/article_b8b1c816-bd2b-5f46-9d5a-68c5ad0ed39d.html

 

You may want to watch this unfold.

[MooCow]

What is it about? I can't click link on this thing....

[Whereneverever]

It's about the tax exemptions for clergy who own homes.

[Starr]

Now that would be a super drag on the financial empire, such as it is. 

[Murphy101]

I have never known clergy that got a housing allowance. Or maybe I just didn't know. All the clergy I've ever known live in a house the church owns. Even the baptist ministers I know of, so it's not just a catholic thing to go that route. I suspect, this will encourage other churches to go that route if possible too.

[Chris in VA]

It's not even if you own your home; a housing allowance can be used for rent and other things. Just further info.http://www.clergytaxnet.com/Clergy%20Tax%20Facts/housing.htm

[Whereneverever]

A lot of denominations moved away from that (Lutheran, Methodist, Presbyterian, ect) because not owning a home left a lot of clergy is dire straights at retirement age. Most clergy who own homes aren't living in mansions, though, and I know a lot of people who are already making very small wages who will be on desperate straights with this change.

[Jennifer in MI]

This would break us, that's for sure.  

[Whereneverever]

This would break us, that's for sure.

I'm so sorry. :(

 

I have seen suggestions coming through already that churches that can could buy the homes as parsonages. I don't know your situation but I hope this doesn't break you.

[Jennifer in MI]

My husband just said the same thing.  We'd work something out, I'm sure.  But, we built our budget around the fact that we had this tax advantage.  With a couple children leaving for college, I really think it would.  Our area is a very high COL area.  Our housing allowance is very high.  I don't even want to think about it.  It would shove us up into another tax bracket, for sure. 

[LizzyBee]

I have never known clergy that got a housing allowance. Or maybe I just didn't know. All the clergy I've ever known live in a house the church owns. Even the baptist ministers I know of, so it's not just a catholic thing to go that route. I suspect, this will encourage other churches to go that route if possible too.

 

The value of a parsonage is reported in the same way as a cash housing allowance, so the tax consequences are similar. Both are subject to self-employment tax, but excluded from income tax.

 

Since this was a district court decision, I wonder if the IRS will decide to enforce it or wait for a decision from a higher court.

[Little Nyssa]

It's not just about clergy who are wealthy and own big homes. It's about the part of clergy income which is designated housing expenses being not taxed. That income is used for any housing expenses, which could be rent, mortgage, utilities, repairs.

 

I think that this was originally because the government felt that clergy provided a benefit to society and should get a tax break for that reason. But we need to expect that as our country gets more secular, these benefits may disappear. We'll manage somehow.

[QueenCat]

I guess I don't understand why clergy, or anyone else's, housing allowance shouldn't be treated as income. Or do they not get to take the home ownership related tax deductions, such as for mortgage interest? It would be unfair to other tax payers to be allowed to not have the housing allowance taxed and also get the interest deductions on one's taxes.

[LizzyBee]

I guess I don't understand why clergy, or anyone else's, housing allowance shouldn't be treated as income. Or do they not get to take the home ownership related tax deductions, such as for mortgage interest? It would be unfair to other tax payers to be allowed to not have the housing allowance taxed and also get the interest deductions on one's taxes.

 

They do get the deductions for property tax and mortgage interest. I don't know the origin of the exclusion, but I'm curious now.

 

[JustEm]

I don't understand why the clergy even got a housing allowance in the first place so I can't really be upset about it.  

[LucyStoner]

This law is not something we have always had. It was added in the 1950s. While clergy may provide a benefit to society so do a lot of other workers who pull in small salaries, like teachers and social workers. I am not sure why we would do this for anyone but those in the military (as they are paid by taxpayers and that saves taxpayers money and everyone benefits).

[beaners]

This is just a guess, but was it because traditionally many clergy lived at a home adjacent to the church, but then that became less common?  

[sassenach]

I guess I don't understand why clergy, or anyone else's, housing allowance shouldn't be treated as income. Or do they not get to take the home ownership related tax deductions, such as for mortgage interest? It would be unfair to other tax payers to be allowed to not have the housing allowance taxed and also get the interest deductions on one's taxes.

Well, it's also unfair that clergy must either opt out of the entire SS system OR pay self employment taxes.  There's no other profession that gets stuck with those options (based solely on their title rather than their employment circumstances).  There's a lot about clergy tax that doesn't add up, but the housing allowance tips to one side, while the SE issues tip to the other.  If HA goes away, it won't surprise me, but it will feel pretty one-sided.  

 

There's just also my general frustration over how as our country becomes more secularized, there is a building willful blindness to the huge gap that is filled by religious institutions that would otherwise need to be filled by the government.  Well, maybe not need to be, but it certainly benefits the government and society at large to receive the MANY free services that churches provide.  Also, I live in a very high COL area.  The only way we get by living here (and renting, with no tax deductions) is with that HA. I think this will have a much bigger impact in cities that are HCOL.

 

However, I fully expected this.  I'm not surprised at all.

[sassenach]

Also, can I just go off for a minute on how ridiculous it is to base any argument on the handful of mega church pastors that exist? Especially when you consider that many of them (most?) make their money off of book sales, which are fully taxed.

[Moxie]

Well, it's also unfair that clergy must either opt out of the entire SS system OR pay self employment taxes. There's no other profession that gets stuck with those options (based solely on their title rather than their employment circumstances). There's a lot about clergy tax that doesn't add up, but the housing allowance tips to one side, while the SE issues tip to the other. If HA goes away, it won't surprise me, but it will feel pretty one-sided.

 

There's just also my general frustration over how as our country becomes more secularized, there is a building willful blindness to the huge gap that is filled by religious institutions that would otherwise need to be filled by the government. Well, maybe not need to be, but it certainly benefits the government and society at large to receive the MANY free services that churches provide. Also, I live in a very high COL area. The only way we get by living here (and renting, with no tax deductions) is with that HA. I think this will have a much bigger impact in cities that are HCOL.

 

However, I fully expected this. I'm not surprised at all.

One could argue that that is the whole point. Break down the clergy so the government has to step in and "save the day".

Not saying that that is what I think but I don't disagree with it either.

[Murphy101]

The value of a parsonage is reported in the same way as a cash housing allowance, so the tax consequences are similar. Both are subject to self-employment tax, but excluded from income tax.

 

Since this was a district court decision, I wonder if the IRS will decide to enforce it or wait for a decision from a higher court.

 

 

I don't think so. I don't think our parish priest gets to claim anything at all on our rectory. It literally is not his home. The parish gets to decide everything about who lives there and often it is not just him either. (Multiple priests might be staying there, some for short periods, some for several years.

 

I guess I don't understand why clergy, or anyone else's, housing allowance shouldn't be treated as income. Or do they not get to take the home ownership related tax deductions, such as for mortgage interest? It would be unfair to other tax payers to be allowed to not have the housing allowances taxed and also get the interest deductions on one's taxes.

I could be wrong, but I do not think think our parish priest gets to do any of that. He mortgage is held by the parish, not the priest. The home is not his in any way shape or form and never will be. And I don't think he pays anything in rent or allowance either.

 

As for retirement, most priests are either sent to a retirement community or they serve as stand ins until they are too far gone to do so any longer or they are moved to some other semi-retired function. Having a home to live in during retirement is not as much of an issue as it might be for a family man who has retired.

[Murphy101]

I get frustrated when people talk about how wealthy the pope or whatever archbishop is. None of them are wealthy. The beauty you see around them is purely artifact, donations, and benefactors and very few of those things actually belong to that one person. They belong to the church. That pope, archbishop or whoever can't just sell it or do away with it bc it doesn't beyond to them. Many rich people donate their mansions to house priests or serve church functions and that's great. It still does not belong to that individual and often serves many great uses.

 

The pope for example, does not have full use of the entire Vatican as his palace. The papal apartment actually quite spartan and limited.

[LizzyBee]

 

 

I don't think so. I don't think our parish priest gets to claim anything at all on our rectory. It literally is not his home. The parish gets to decide everything about who lives there and often it is not just him either. (Multiple priests might be staying there, some for short periods, some for several years.

 

 

I could be wrong, but I do not think think our parish priest gets to do any of that. He mortgage is held by the parish, not the priest. The home is not his in any way shape or form and never will be. And I don't think he pays anything in rent or allowance either.

 

As for retirement, most priests are either sent to a retirement community or they serve as stand ins until they are too far gone to do so any longer or they are moved to some other semi-retired function. Having a home to live in during retirement is not as much of an issue as it might be for a family man who has retired.

 

Excerpt from the IRS website: "The fair rental value of a parsonage or the housing allowance is excludable from income only for income tax purposes. No exclusion applies for self-employment tax purposes."

 

Even though priests don't own their home, they still receive value by being permitted to live there rent-free. Unless the priests have elected out of the social security system (and perhaps Catholic priests do, I don't know), they must pay self-employment tax on the value of their living quarters.

 

[Murphy101]

Excerpt from the IRS website: "The fair rental value of a parsonage or the housing allowance is excludable from income only for income tax purposes. No exclusion applies for self-employment tax purposes."

 

Even though priests don't own their home, they still receive value by being permitted to live there rent-free. Unless the priests have elected out of the social security system (and perhaps Catholic priests do, I don't know), they must pay self-employment tax on the value of their living quarters.

 

Ugh.. That's stupid. In any given year a priest might live in 1-6 different parson ages and might share those personages with 1-4+ other people at various times over that year. How the heck are they supposed to figure their % of value on a property that isn't even theirs?

 

And what about self/low employed people living with their parents? Do they also have to figure tax on their dwelling? Or people who use shelters or live in dormitories? Are only clergy expected to pay a special tax on property that isn't even theirs?

[Whereneverever]

I believe they use fair market rental value, which is a big problem when you think of some of the homes that are donated for use.

[T'smom]

 

 

I don't think so. I don't think our parish priest gets to claim anything at all on our rectory. It literally is not his home. The parish gets to decide everything about who lives there and often it is not just him either. (Multiple priests might be staying there, some for short periods, some for several years.

 

 

I could be wrong, but I do not think think our parish priest gets to do any of that. He mortgage is held by the parish, not the priest. The home is not his in any way shape or form and never will be. And I don't think he pays anything in rent or allowance either.

 

As for retirement, most priests are either sent to a retirement community or they serve as stand ins until they are too far gone to do so any longer or they are moved to some other semi-retired function. Having a home to live in during retirement is not as much of an issue as it might be for a family man who has retired.

This doesn't just involve Catholic priests. It applies to all clergy.

[nmoira]

Well, it's also unfair that clergy must either opt out of the entire SS system OR pay self employment taxes. There's no other profession that gets stuck with those options (based solely on their title rather than their employment circumstances).

Perhaps you should lobby to end the exemption enjoyed by religious institutions to opt out of these programs? This is why their clergy are stuck with those options.

 

ETA: I was confusing two different things. I do think churches should pay clergy FICA when they are considered employees, but they do not currently have the option. They do have the right to opt out of FICA for other employees if objection is conscientious.

[nmoira]

Ugh.. That's stupid. In any given year a priest might live in 1-6 different parson ages and might share those personages with 1-4+ other people at various times over that year. How the heck are they supposed to figure their % of value on a property that isn't even theirs?

 

And what about self/low employed people living with their parents? Do they also have to figure tax on their dwelling? Or people who use shelters or live in dormitories? Are only clergy expected to pay a special tax on property that isn't even theirs?

 

Living with parents... not an employment benefit.

Shelters... ditto.

Dormitories? People pay for the "privilege"... it's not an employment benefit

Clergy are receiving an employment benefit. 

[Murphy101]

This doesn't just involve Catholic priests. It applies to all clergy.

Yes, I know. I didn't say it did. I am just illustrating why it's a PITA for some clergy.

[sassenach]

Perhaps you should lobby to end the exemption enjoyed by religious institutions to opt out of these programs? This is why their clergy are stuck with those options.

I'm sure somebody will file some lawsuit in the near future which will do just that.  

 

I'm curious though (if you happen to know), only clergy are stuck with these options.  All other church employees fall under the normal ss withholdings.  So is the institution truly exempt, or is it about the individual clergy conscientious objector exemptions?

 

Dh and I didn't file as objectors, so we pay SE tax.  I don't really know much about how are tax laws got here.  

[nmoira]

I'm sure somebody will file some lawsuit in the near future which will do just that.  

 

I'm curious though (if you happen to know), only clergy are stuck with these options.  All other church employees fall under the normal ss withholdings.  So is the institution truly exempt, or is it about the individual clergy conscientious objector exemptions?

 

Dh and I didn't file as objectors, so we pay SE tax.  I don't really know much about how are tax laws got here.  

 

 I don't know. Here's what SS says about "certain" church employess, but there's no list of which employees.

 

http://www.ssa.gov/OP_Home/handbook/handbook.11/handbook-1136.html

[nmoira]

Ah, here's a clear history of the employee/SS situation. I didn't realize the change was so recent (1995).

 

http://www.unyumc.org/pages/detail/1397

 

It seems it would make more sense if clergy's SS/Medicare were paid/withheld by the institution as well if they are considered employees. But that would require a change in the law.

[MooCow]

It's about the tax exemptions for clergy who own homes.

 

Thank you!

[mytwomonkeys]

I have never known clergy that got a housing allowance. Or maybe I just didn't know. All the clergy I've ever known live in a house the church owns. Even the baptist ministers I know of, so it's not just a catholic thing to go that route. I suspect, this will encourage other churches to go that route if possible too.

We lived in a parsonage several years back. It is not my ideal at all. The house was lovely, but it was never really ours. It belonged to the church, so renovations, remodeling, or even dreaming about our old age there wasn't an option. I much prefer living in a home we purchase. Our senior pastor and all of our associate pastors here own their own homes. The housing allowance is how you file taxes.

[LizzyBee]

Ugh.. That's stupid. In any given year a priest might live in 1-6 different parson ages and might share those personages with 1-4+ other people at various times over that year. How the heck are they supposed to figure their % of value on a property that isn't even theirs?

 

And what about self/low employed people living with their parents? Do they also have to figure tax on their dwelling? Or people who use shelters or live in dormitories? Are only clergy expected to pay a special tax on property that isn't even theirs?

 

The church is supposed to calculate the value and provide it to their pastors/priests.

 

In most cases, people living with family would be considered gifts, whereas for churches, it's part of an employment package. If college students get scholarships that cover their room and board, yes, that portion of their scholarship is taxable, but only for income tax since it's not related to employment.  If a business provides living quarters for employees, the value must be included in their W-2 and it's taxable for both income and fica taxes.  Only clergy get the exclusion for income tax.  But as another poster pointed out, pastors pay self-employment tax (both halves of the fica tax) even though they are employees of their churches.  So the tax situation is not all good for pastors.

[Chris in VA]

This law is not something we have always had. It was added in the 1950s. 

 

Actually, it goes back to 1921, but was revised in the 50's and in 2002. 

I wonder how it got started.

[QueenCat]

I have never known clergy that got a housing allowance. Or maybe I just didn't know. All the clergy I've ever known live in a house the church owns. Even the baptist ministers I know of, so it's not just a catholic thing to go that route. I suspect, this will encourage other churches to go that route if possible too.

 

I've seen a mix in the United Methodist Church. Some churches have a parsonage, some give a housing allowance.

[albeto.]

There's just also my general frustration over how as our country becomes more secularized, there is a building willful blindness to the huge gap that is filled by religious institutions that would otherwise need to be filled by the government.  Well, maybe not need to be, but it certainly benefits the government and society at large to receive the MANY free services that churches provide.  

 

Although I can appreciate the worry this will inevitably create for many generally decent and good people, I think this comment exposes the kind of idea that is increasingly doubted, the rejection of which eventually led to the courts looking at the constitutionality of the issue. Our nation is becoming more secularized, but there is no "willful blindness to the huge gap that is filled by religious institutions." The fact is, people are increasingly unimpressed with the supposed "good" churches do, and frustrated with the "bad" they do. There is growing skepticism about the idea that churches benefit the government and society in such measure as has been generally assumed without question, but that's really irrelevant to this issue, I think. As has been mentioned upthread, there are a great many groups and organizations that benefit society, and they are not relieved of the expectation of paying taxes, so, while I can appreciate the personal frustration this will create, no longer receiving an unlawful privilege at the expense of all of us is hardly upsetting to many of us. What is frustrating for you is one solution to many things that have been frustrating to a great many people for a long time. 

[bolt.]

In Canada, the clergy housing allowance applies to a portion of clergy income that is paid "in lieu of" providing a parsonage. This ensures that clergy who work for parsonage-providers and clergy who work in non-parsonage situations are treated approximately the same way for tax purposes.

 

A: living rent free in a parsonage + a taxed wage

B: enough to pay for housing (tax free) + a taxed wage

[sassenach]

Although I can appreciate the worry this will inevitably create for many generally decent and good people, I think this comment exposes the kind of idea that is increasingly doubted, the rejection of which eventually led to the courts looking at the constitutionality of the issue. Our nation is becoming more secularized, but there is no "willful blindness to the huge gap that is filled by religious institutions." The fact is, people are increasingly unimpressed with the supposed "good" churches do, and frustrated with the "bad" they do. There is growing skepticism about the idea that churches benefit the government and society in such measure as has been generally assumed without question, but that's really irrelevant to this issue, I think. As has been mentioned upthread, there are a great many groups and organizations that benefit society, and they are not relieved of the expectation of paying taxes, so, while I can appreciate the personal frustration this will create, no longer receiving an unlawful privilege at the expense of all of us is hardly upsetting to many of us. What is frustrating for you is one solution to many things that have been frustrating to a great many people for a long time. 

I actually agree with the bolded.  They are separate issues.  This generation of pastors was "born" into this tax system.  We didn't choose it, but it is the one that we've built our finances around.  I would actually be ok with a complete overhaul if it would squash the perception that we're somehow trying to pull one over on the rest of you.  I hate paying SE taxes, and would completely love to be done with that (of course every one of these issues is a separate part of the tax law, so they'll have to be addressed one at a time).  The changes will sting, but I know we'll be ok.

 

As for the willful blindness- it really is.  I don't believe you have any clue (as in actual time seeing real lives) what a stabilizing force the church is in the lives of individuals and families.  Not just pastors, but the whole church.  I don't think anyone who lives outside of the church has an accurate perception.  And that's fine, I don't expect you to.  We are living in post-christian times, and I think all of this is to be expected.  

[LizzyBee]

To answer my own question about IRS enforcement of a district court decision, I got an email that says for now, only that particular district in WI is affected.  If the Circuit Court affirms the decision, it will apply to WI, IL, and IN.

 

[NASDAQ]

I kind of wonder whether people talking about the unfairness of a special clergy deduction have ever seen the tax code. You could beat someone to death with that thing; It's 4000 pages of special pleading. 

[jewellsmommy]

Although I can appreciate the worry this will inevitably create for many generally decent and good people, I think this comment exposes the kind of idea that is increasingly doubted, the rejection of which eventually led to the courts looking at the constitutionality of the issue. Our nation is becoming more secularized, but there is no "willful blindness to the huge gap that is filled by religious institutions." The fact is, people are increasingly unimpressed with the supposed "good" churches do, and frustrated with the "bad" they do. There is growing skepticism about the idea that churches benefit the government and society in such measure as has been generally assumed without question, but that's really irrelevant to this issue, I think. As has been mentioned upthread, there are a great many groups and organizations that benefit society, and they are not relieved of the expectation of paying taxes, so, while I can appreciate the personal frustration this will create, no longer receiving an unlawful privilege at the expense of all of us is hardly upsetting to many of us. What is frustrating for you is one solution to many things that have been frustrating to a great many people for a long time. 

 

A little off topic...

I know this conversation is not about the bolded, but I wanted to address it briefly. The many churches in our area that I am familiar with, have food pantries and/or clothes closets and/or benevolence funds that give to people of the community regardless of church attendance. This fills the gap for families that are the 'working poor.' I hear it all the time, "we make just a little too much to qualify for most of the assistance programs, but not enough to make it right now."

 

Our church gets calls on a pretty regular basis from people looking for help, and we do what we can. Our daycare is almost all social service kids. At last count we had 2 private pay clients. Our daycare provides a vital service, and we do extra for these families. Our Pastor oversees the running of the daycare as well as the church. I know that many may not be aware of these sorts of services, but they are common in our area, and I would be surprised to find that we are unique in the services we provide.

[Whereneverever]

In Canada, the clergy housing allowance applies to a portion of clergy income that is paid "in lieu of" providing a parsonage. This ensures that clergy who work for parsonage-providers and clergy who work in non-parsonage situations are treated approximately the same way for tax purposes.

 

A: living rent free in a parsonage + a taxed wage

B: enough to pay for housing (tax free) + a taxed wage

That is the current US system, as well, and what is up for change in this decision.

[albeto.]

I actually agree with the bolded.  They are separate issues.  This generation of pastors was "born" into this tax system.  We didn't choose it, but it is the one that we've built our finances around.  I would actually be ok with a complete overhaul if it would squash the perception that we're somehow trying to pull one over on the rest of you.

 

I appreciate this sentiment. Thanks.   :) 

 

As for the willful blindness- it really is.  I don't believe you have any clue (as in actual time seeing real lives) what a stabilizing force the church is in the lives of individuals and families.  Not just pastors, but the whole church.  I don't think anyone who lives outside of the church has an accurate perception.  And that's fine, I don't expect you to.  We are living in post-christian times, and I think all of this is to be expected.

Why would you believe I don't have any clue? On what do you base this belief? Where does the perception of one who left the church fit, the perceptions of one who was not always outside, but was inside and contributed and genuinely believed this at one time as well?

 

As a correlated question, why do you think we live in post-christian times?

 

The many churches in our area that I am familiar with, have food pantries and/or clothes closets and/or benevolence funds that give to people of the community regardless of church attendance. This fills the gap for families that are the 'working poor.' I hear it all the time, "we make just a little too much to qualify for most of the assistance programs, but not enough to make it right now."

 

Yeah, this is part of the whole "generally assumed without question" component that people are increasingly questioning. This argument is no longer persuasive to a growing number of people. I don't mean they don't believe churches contribute to and run benevolence funds, but that they are necessary, or even benign. 

[AlmiraGulch]

As for the willful blindness- it really is.  I don't believe you have any clue (as in actual time seeing real lives) what a stabilizing force the church is in the lives of individuals and families.  Not just pastors, but the whole church.  I don't think anyone who lives outside of the church has an accurate perception.  And that's fine, I don't expect you to.  We are living in post-christian times, and I think all of this is to be expected.  

 

The issue being discussed isn't about the Church at large, but rather the clergy who work for the individual churches.  The fact that churches serve communities is irrelevant when it comes to clergy being employees of an organization, and should be taxed as such, just like every other employee of every other non-profit organization that supports communities. 

[Leav97]

 

I appreciate this sentiment. Thanks.   :) 

 

Why would you believe I don't have any clue? On what do you base this belief? Where does the perception of one who left the church fit, the perceptions of one who was not always outside, but was inside and contributed and genuinely believed this at one time as well?

 

As a correlated question, why do you think we live in post-christian times?

 

 

Yeah, this is part of the whole "generally assumed without question" component that people are increasingly questioning. This argument is no longer persuasive to a growing number of people. I don't mean they don't believe churches contribute to and run benevolence funds, but that they are necessary, or even benign. 

 

I can generally assume that most churches provide support for their congregation and some churches also provide support for the community.  I would argue the "free" support isn't really "free".

[Whereneverever]

I can generally assume that most churches provide support for their congregation and some churches also provide support for the community. I would argue the "free" support isn't really "free".

I think it's impossible to generalize that. My church provides community support with zero strings to people who have no intention of becoming members. In what way is that not free to them? We provide food, monetary assistance, day care subsidies, medical bill assistance, housing assistance...

[AlmiraGulch]

I think it's impossible to generalize that. My church provides community support with zero strings to people who have no intention of becoming members. In what way is that not free to them? We provide food, monetary assistance, day care subsidies, medical bill assistance, housing assistance...

 

Well, and now you're generalizing, aren't you?

 

I don't doubt that your church does what you say.  In fact, the church I used to belong to was the same.  That doesn't negate the fact that many others have had different experiences with the churches they've been exposed to. 

[Whereneverever]

I think plenty of churches offer member only or no aid. I should have clarified. It's just not true that ALL churches are that way. Some churches don't and some do. I just don't want the churches that do provide aid to be glossed over.