Bishop: Close clergy’s tax loophole for housing

By Bishop Jack M. Tuell, Special Contributor…

I have just completed my 2012 federal income tax return and sent it off with a sigh of relief. But once again I was troubled by something in the tax code that gives me a huge advantage over almost everyone else except other clergy.

I refer to the IRS provision that exempts clergy from paying tax on remuneration received under the rubric “housing allowance,” to the extent that the money is actually used for housing.

When this provision was passed decades ago, it made some sense. Clergy were expected to, and did, live in parsonages (usually next to the church), and lived there “for the convenience of the church.” They were in the same category as the military living in military housing “for the convenience of the government,” and both groups were exempted from paying tax on the value of their housing.

Many clergy are still in this category, and providing an exemption for them makes sense.

But the situation has changed dramatically in recent decades. Large numbers of clergy now receive housing allowances, and buy or rent their homes at places of their own choice, like persons in almost every other occupation.

I retired more than 20 years ago, and receive a pension from the General Board of Pension and Health Benefits of our Church. I still receive the benefit of the housing exemption, thanks to a resolution passed by the Board declaring part of my pension a “housing allowance.” Such a provision is surely not for the convenience of the church, but for the financial benefit of the clergy involved.

But does this special treatment meet the standard of fairness and justice that we profess as Christians?  Why do my friends and neighbors in other occupations (or retired from other occupations) not receive the break which may result in a cash savings of $1,000 to $3,000 annually?

Congress is struggling to close loopholes in the tax code. The efforts are largely in vain because of the fierce opposition of the loophole beneficiaries.

Are we clergy just another group of beneficiaries fighting for our loophole? Or do we have an obligation as a band of Christians to say, “In the name of justice and fairness, close this loophole!”

Bishop Tuell, a former president of the UMC Council of Bishops, lives in Des Moines, Wash.

Special Contributor to UMR

Special Contributor

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  1. reverendbpl says:

    I do appreciate where the Bishop is coming from here. We should all pay our fair share in taxes. However, most pastors do not make a bishop's salary. We receive extremely modest sums and, to be frank, with the prospect of church decline they will not be going up anytime soon. Additionally, my family would not be able to make it if I did not receive a housing allowance. And it doesn't even cover the rent I pay because of how expensive and scarce rental housing is in my appointment area (Ft. Collins, CO). Basically, if the church wants people like me to continue serving (and I assure you it does because I am only 29), we need to continue supplementing meager salary packages with this tax break. At the same time, perhaps people like the Bishop who feel bad for getting the break could tithe the extra money back the church or other worthy institution.

  2. preacher son says:

    There are many inequities in our tax system in regards to clergy . Most of our clergy continue to serve in many ministries even though they receive no direct payment. In the southeast many clergy served churches at very low salaries and also are not afforded the opportunity to buy a home and have it paid for after a thirty year career like a layperson. Thus, most clergy miss the mortgage tax deduction during the 30 year career. This exemption in retirement only happens to balance the scale for many.

    As a Bishop, you have enjoyed many tax breaks and I applaud your charitable intent. I am afraid many of the pastors serving at the grassroot level would not agree. If you feel so inclined, and I have seen this before, if a person feels strongly about the tax break they felt should not be given, you could send in the amount of the tax and the government would gladly accept it

  3. marienk67 says:

    Dear Bishop, I know what you're saying and in theory it sounds right and good, but as a retired pastor's wife, I have to disagree. We had to pay social security on the fair rental value of the parsonage. A realtor would appraise and give the numbers to the church and it would mean that our rate would go up. On a salary of $22,000 we were paying almost $9,000 to the IRS. If the tax loophole were eliminated that would mean even more to the IRS. We were able to eat and buy gas and occasionally go to visit our kids and grand-kids but if more were asked that would probably be eliminated. Just thought you should know that a lot of clergy families appreciate the tax break when we can get it. We aren't millionaires or even making 100,000. We donate a lot of our money back to the church and to other charities because we feel that is what the Christ would want us to do. We have no problem "giving to Caesar what is Caesar's'" but if Caesar is willing to cut us a break I'm grateful.
    Marie King

  4. methodistpie says:

    Another REPORTER thread invites rank-and-file clergy to trust our leadership. Bishop Tuell seems to think Methodist pastors have it too cushy. I'll remember that as I'm paying my 13.3% in Social Security. For that matter, in my most recent itineracy, I moved from a parsonage to a Housing Allowance–not by my own choice, but because of the policy of the local church to which I was appointed. That was right before the housing bubble burst and I'm just hoping not to lose too much money on the proposition. I've not complained about that. I count myself very blessed to be a United Methodist pastor. I'm thankful I started when I did. More recent seminary graduates are often saddled with huge debt. Perhaps there is truth to the bishop's argument–but I would suggest that our bishops are the last persons who should be making it.

  5. shadowknos says:

    It seems strange that NOW you are bring this up. Being retired and enjoying the tax break for years .
    Twenty years after you retire, now it seems like a problem

  6. jpfeagins says:

    I am pleased that Bishop Tuell cares about social inequity and clergy salaries.

    There is a far greater social inequity, however, WITHIN our denomination between clergy salaries than this tax advantage presents between the clergy and the population at large. Many pastors, especially persons of color, cannot afford a home or health insurance after retirement, while others (including many who oppose the security of appointment) enjoy a compensation package in excess of two or three minimum compensation packages. The average cost of health insurance for clergy is twice that for other professions due to the advanced average age of our clergy, a reality particularly harmful to younger clergy with children living at home. Consider also the inequity between what it costs to academically prepare for ordination and the compensation received afterwards. In too many cases, a pastor with a young family finishes seminary with $40,000-$60,000 in academic debt and is sent to a charge with a minimum compensation of $38,000 where health insurance for the family costs $22,000 a year and only the clergy person is covered.

    Clergy also suffer disadvantages in the tax code that offset any advantage through the housing allowance. For example, clergy pay 100% of their social security tax, and that tax is calculated on their compensation and their housing, even if that housing is a parsonage. A pastor can be forced to live in a house with landlords who do not maintain it and be charged 15% tax on the "fair rental value" of that house.

    For true equity to exist, salaries and benefits would need to be set on some kind of pay-grade system based on consistent effective ministry over time and paid through the annual conference with no more "higher the pay, longer the stay" for our wealthiest churches and their pastors, and an equitable compensation policy that truly seeks to achieve fairness and equity, rather than simply being a slush fund to caulk up cracks in the appointment process. Housing allowances should also probably be capped so we don't have ministers with a $50,000 housing allowance working in the same city with "colleagues" who receive a $12,000 housing allowance.

  7. Just a layman here. I have got to say that it is refreshing to read letters from pastors who are not bowing and scraping to the bishop. You folks living in parsonages I am sure always take care of the property. Our church has a nice parsonage that is fairly well maintained. If a clergy family wants to redecorate we let them–most of the time. We pay utilities, try to fix leaky faucets, buy new dishwashers, washing machines and dryers, etc. Sometimes we have clergy who bring a lot of "stuff" themselves and they want to use it instead of what is furnished in the parsonage. That's ok–except when the clergy famiy moves church stuff out and lets it get exposed to the elements and gets ruined. Yep, that has happened. Lots of us are reeling with the economic downturn–not just folks employed by the church. Maybe the powers that be can carry more of the load and leave clergy in their parishes more. Of course, those who stay "home" don't get "bishop exposure" so they may have to stay in a "hard" church longer then they want. Works lots of ways!!! Yay preachers. Tell the bishop(s) how you really feel. Gotta be a GOOD thing.

  8. Hopefully, Bishop, you paid SS on the Fair Rental Value of the parsonage while an active clergy. And hopefully now, you are only claiming the smaller of your housing allowance or actual expenses. Whatever the conference declares as housing allowance doesn't mean you can claim that. You can only claim the smallest number.

  9. Recently (November, 2013) a judge has ruled against this tax break, which has caused quite a stir. Part of me has felt guilty over this tax break, but not guilty enough to do anything about it financially. I enjoy giving money to others, but not enough to make extra donations to the government, though that is not true of everyone, thankfully. I was just reading a story of a man who left 5.5 million in his will to the United States Government in gratitude for the blessing of living in this wonderful country.

    As people interprete this ruling, it appears it will not go into affect for many years. Most of the older preachers will be dead by that time, so hopefully they will relax. The younger preachers are getting a bad deal at several points right now, especially with health care coverage. Perhaps some of us older preachers can help support a younger preacher. She or he would be grateful, I am sure.

    Bishop Tuell should be commended for tackling a difficult issue. He has done it often, even before retirement.

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