In a surprising ruling, a federal judge held Friday that the nearly century-old housing allowance exemption for “ministers of the gospel” violates the First Amendment's Establishment Clause “because the exemption provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise.”
Judge Barbara Crabb of the U.S. District Court for Western Wisconsin further stated that in “>applicable when “the employee is required to accept such lodging on the business premises of his employer as a condition of his employment”.
Paul Caron at the “>excellent account of the consequences of Judge Crabb's account for religious employers and ministers:
The clergy housing exemption applies to an estimated 44,000 ministers, priests, rabbis, imams and others. If the ruling stands, some clergy members could experience an estimated 5 to 10 percent cut in take-home pay. . . .
Churches routinely designate a portion of a pastor’s salary as a housing allowance. So, for example, a minister that earns an average of $50,000 may receive another a third of income, or $16,000, as a tax-free housing allowance, essentially earning $66,000. Having to pay taxes on the additional $16,000 ($4,000 in this case), would mean an 8 percent cut in salary.
The exemption is worth about $700 million per year, according to the Joint Committee on Taxation Estimate of Federal Tax Expenditure.
To be sure, Judge Crabb's decision is not binding on other judges (and has been stayed in the case before her pending appeal). But if the Seventh Circuit affirms Crabb's decision, ministers in Illinois, Indiana and Wisconsin would be unable to claim the housing allowance exemption under § 107. That is, unless they need to live on the church property for their job, housing allowance would be part of their total taxable compensation.
But the Seventh Circuit also could reverse Judge Crabb's holding, as it did two years ago in a case likewise commenced by the Freedom From Religion Foundation. In the earlier case, Judge “>unconstitutional. The appellate court reversed because the Freedom From Religion Foundation “>Legal Standing Under the First Amendment's Establishment Clause“.) It will be interesting to see how this one plays out.
