Several times each day for the last several days I have encountered people commenting on a recent ruling by a federal judge, which finds that the Internal Revenue Service exemption that allows clergy to shield a portion of their salary from federal income taxes is unconstitutional. Almost all commentators agree that the ruling will likely be appealed. Based on my own research, I think it is unlikely that the allowance will go away any time soon. I do, however, also think it is unlikely it will remain “as is” indefinitely.
So What?
The Freedom from Religion Foundation brought suit arguing that the housing allowance violates the separation of church and state and the constitutional guarantee of equal protection. According to the logic advanced by their argument, if tax-exempt religious groups receive the housing allowance, then all other tax-exempt groups should as well (which, of course, would included the Freedom from Religion Foundation).
Consider each of the following scenarios as it relates to how your church might approach budgeting for pastoral compensation as well as for how non-pastoral staff are compensated:
- Scenario 1: The current housing allowance remains unchanged. (This should be your congregation’s current budget and/or budgeting philosophy.)
- Scenario 2: The housing allowance is phased out over a set number of years or ends abruptly on a certain date.
- Scenario 3: The housing allowance broadens to cover all employees of all non-profit organizations.