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
I highly recommend this
article as a good read.
–Ron Chandler, CCA
More articles on the recent district court decision to
declare the minister’s housing allowance as unconstitutional:
·
Stand Firm, Faith Among the Ruins
·
Fox News