My Thoughts – Recent District Court Decision Regarding the Minister’s Housing Allowance
November 27, 2013
I decided to weigh-in on the discussions about the recent district court ruling that the long-standing minister’s housing allowance exclusion is unconstitutional. You can read the exact details of this decision here. My first comment about this ruling is that it is no surprise. Frankly, I have expected this to happen sooner. Of course, a lengthy legal course of events has already been initiated that will take several years for an eventual resolution, which, IMO, will probably find is way to the Supreme Court.
My personal observation is this: what really needs to happen as part of this process that would seem to be fair and logical is that the “dual status” of ordained pastors working in the church be “corrected”. What do I mean? The ordained minister/pastor is allowed to exclude a properly designated housing allowance from reportable income (on the Form W-2). The proper reporting for a minister’s wages for the church is with the use of a Form W-2. However, the “dual status” kicks in at this point because for Social Security purposes, a minister is classified as “self-employed” and appropriately comes under the SECA guidelines for Social Security withholdings meaning that the minister must not only pay the employee’s portion of withholding for FICA, but must also pay an additional percentage of FICA for his “self-employed” status, as any other self-employed professional must do. This is all handled on the minister’s tax return through the Form SE. As ordained pastors, you must either elect voluntary payroll withholdings on your church earnings to pay this tax or make estimated quarterly tax payments to include this tax that will be due with the filing of the minister’s tax return. So, even though the minister gets to exclude his/her housing allowance from reportable income, he/she must pay SECA taxes for self employment. In summary, the minister/pastor is classified as employed (by the church) for tax purposes and self-employed for FICA purposes, hence, the “dual status”. IMO, this “dual status” is inconsistent. And, if this ruling is upheld, the “dual status” becomes even more inconsistent and unfair.
If the district court ruling holds up through the legal challenges, I also believe the “dual status” classification of the minister/pastor as self employed for purposes of Social Security / SECA should also be changed to consider the minister/pastor as an employee if he/she receives a Form W-2 from a church or 501(c)3 ministry organization. I don’t believe you can do away with the housing allowance exclusion without also correcting the inconsistent classification of a minister/pastor as “self-employed”.
If this were to happen, the resulting financial impact on the minister/pastor from the loss of the excludable housing allowance would be largely negated by no longer being classified as self-employed for FICA purposes. The FICA/SECA taxes saved would offset the increase in reportable income and resultant higher taxes due. IMO, the self-employment status of a minister/pastor who is employed by the church (and appropriately receives a W-2) is grossly inconsistent and needs to be corrected.
Lastly, when you read the comments by the parties involved in filing the lawsuit in this article, it is apparent to me that there is a significant bias against mega-church pastors viewed as highly paid ministers. It has been my historical understanding that 1954 law passed by Congress had as a significant part of its reasoning the need for military chaplains to receive this tax status and that the passage of the law was, in part, to help this classification of ordained pastors as chaplains in the military. The judge makes no mention of this in her ruling and causes me to consider that the reasoning of the lawsuit and the ruling are strictly based on lost tax revenue and that religion does not constitute a tax benefit for ministers with no argument or consideration given to the rational and legislative history of the law. Since the lawsuit was filed against the US Treasury and the IRS, it is reasonable to expect (IMO) that the defense of the law by these federal agencies was, although certainly handled by professional and adept attorneys, not strongly influenced by legal experts and attorneys more capable of arguing the merits of the law based on their experience with religion and issues of all laws. Personally, I will be digging deeper to understand the real reasons this law was originally passed in 1954 and how these reasons should be fairly presented and upheld.
Articles and social media posts are beginning to proliferate as a result of the news of this court ruling, especially from the minister’s viewpoint. Many of the comments following some of the articles are very insightful. I highly regard the quote below:
“We who are ministers are under the authority of the God we serve. But our God also told us to be subject to the laws of the land where we live and minister. Though matters such as these can be disconcerting and unsettling, we know that God is always in control. For that reason, we have no cause to worry.” by Dr. Thom Rainer, president and CEO of LifeWay Christian Resources of the Southern Baptist Convention
–Ron Chandler, CCA
More articles on the recent district court decision to declare the minister’s housing allowance as unconstitutional:
· Fox News