Clergy Housing Taxes – Don’t Panic (Yet)

During this time while many congregations are thinking about their 2019 budgets and the Supreme Court is in flux, it’s wise to keep this in the back of your minds. Periodically, there are movements to eliminate the clergy housing allowance, which is part of the clergy person’s compensation that is not subject to federal income tax. The subject has come up again, and there is no telling how it will be resolved. Here’s a concrete example of what the impact might be. If the housing allowance goes away, a clergy person making $39,000 would have to have his or her salary increase by $5,368 to maintain the same spending power.

The matter will likely go through several levels of courts and perhaps land at the Supreme Court, but expect there to be lots of discussion in the coming months. A challenge brought up five years ago was defeated, but it was on procedural grounds. The most recent plaintiffs have been found in the lower courts to have standing, so the outcome might be different than it has been in the past. The good news is that challenges will certainly be presented no matter what the decision is, so it could be years before a final determination is made. Another solution that could be attempted is to widen the housing allowance provision to other non-profits, but that will mean less tax revenue to the government, and that might me a tough sell.

Here are things that can be done now to plan for the possibility. Vestries can start reserving some money in their budgets to help offset the tax hit to their clergy person by eventually giving them raises. If the final decision turns out to be favorable to the clergy person, you’ll have a nice little nest egg to use for other things. Secondly, if you have a rectory or vicarage, you might delay plans to sell it if that has been discussed. Church-provided housing will not be affected by this possible ruling, so these houses as part of the total compensation will become even more valuable in attracting clergy in the future. Thirdly, each clergy person should consult advisors to see what would be the effect on their take-home pay if they didn’t have a housing allowance exemption.

Clergy folks, take a deep breath. This might not become an issue. I’ve found, though, that it’s best to plan for change rather than let change whack you in the face.