ruh roh

[veritas]

http://www.foxnews.com/us/2013/11/23/federal-judge-in-wisconsin-strikes-law-that-gives-clergy-tax-free-housing/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+foxnews%2Fnational+%28Internal+-+US+Latest+-+Text%29

[appelman]

Interesting!

Indeed it be!

[buzzardbreath]

Legislating from the Bench

I see this as a judge who thinks the law is unfair and thus wishes to obfuscate the law. I think for the Congress to exempt itself from Obamacare is unfair but I doubt any judge will rule against it.

In many ways the law IS unfair, and in many ways it is not. Things have changed from 1954. For one thing, taxes for Social Security and Medicare EXCEED income taxes for many people, and these taxes have always been assessed on the housing allowance. SS/medicare are 3X to 4X the rate they were in 1954. In recent years, ministers have had to prorate their expenses, which in some cases may totally offset the tax exemption for the housing allowance. In 1954, there was also no 2% threshold on job expenses, and a minister has many more job expenses than the average person, so he loses out AGAIN.

Also, in 1954, there was a feeling that some encouragement should be given to Ministers of the Gospel, as there was a general recognition that most of them were better educated and would make much more salary if they worked in the commercial environment. Also a general feeling that ministers helped promote religion and morality and this was good for the country. These feelings have changed, as many people now rate churches somewhere on a scale from worthless to occult. The politically correct crowd, including the press and entertainment industries, have done much to undermine the effectiveness of religion. I say this just to state a fact, notwithstanding whether they are correct or not.

I can't attest to much of anything but the rural South, the so-called "Bible Belt." Here, the typical county seat (town) will have 3-4 very large cathedral-sized churches, with well-paid ministers. In fact, some of the higher-paid ministers have bought into politically-correct doctrines themselves. But in contrast to these 3-4 large churches, there will be maybe 100 smaller churches in the county, where the minister is part-time, and makes barely enough to cover his trouble and gas money. Some of them preach for free, maybe even just to hear themselves talk -- I dunno. Almost all of these have zero withholding of any kind, which means nearly all of them have to cough up money at the end of the year. An occasional minister will exempt himself from social security, but for these part-time preachers, they can't make this work for them because they are already subject to social security on their main job.

If I wanted to be a preacher, I certainly would NOT do so for tax benefits. Today these "benefits" are non-existent, or negligible at best. If this Wisconsin judge wants to crusade against things she thinks is unfair, I have a lonnnnngggg list of unfair laws to bring to her court. Many of these people who are turned off by religion have watched too many TV evangelists with gold Rolex watches begging for money and running corporate-like organizations. It's just not that way in my home town.

I hope I have concentrated enough on the tax aspects in my post to keep on-topic and not degrade into some religious diatribe.

[JohnH]

I think you did a very good job, and I agree 100% with most everything you said. It is worth mentioning is that the H&U tax break extends to all clergy, not just ministers of the Gospel. Also, the rationale behind special treatment of the H&U allowance is the same rationale which applies to other professions where housing "for the convenience of the employer" is common. The major group which comes to mind is military personnel.

I've encountered tax pros who didn't understand clergy taxes, and I've encountered tax pros who understood clergy taxes very well but who resented this tax break for clergy, which is relatively insignificant in the total scheme of things. I'd place this judge in the same category as the later group of tax pros.

[veritas]

I do have a problem

I think you did a very good job, and I agree 100% with most everything you said. It is worth mentioning is that the H&U tax break extends to all clergy, not just ministers of the Gospel. Also, the rationale behind special treatment of the H&U allowance is the same rationale which applies to other professions where housing "for the convenience of the employer" is common. The major group which comes to mind is military personnel.

I've encountered tax pros who didn't understand clergy taxes, and I've encountered tax pros who understood clergy taxes very well but who resented this tax break for clergy, which is relatively insignificant in the total scheme of things. I'd place this judge in the same category as the later group of tax pros.

with it.

It would not be insignificant to me if i were allowed to exempt 50k from federal taxes. I recall once a pastor saying how much he liked giving and was going to increase his giving to 20%. I couldn't help think how much easier it would be for us if we could exempt a large share of income from taxes (not to mention exemption from fica taxes in some cases). Honestly I don't thnk clergy have thought this one through. The law was predicated on good merit but those days are gone by and we now have clergy exempting second homes from federal taxes.

[JohnH]

I think you're exaggerating the magnitude. If they're excluding second homes, they're breaking the law. Their tax preparer should inform them of that fact. $50K seems a little high, although not out of the question provided the home is in an area where it would rent for about $4,900 per month. Remember, the exclusion cannot exceed the Fair Rental Value of the home, regardless of how much is set aside and regardless of how much they actually spend.

How many clergy returns do you prepare, and how many derive any significant net tax benefit from the H&U exemption? Especially since they pay the matching SocSec/Medicare on their entire income, including the H&U allowance? The net tax benefit truly ls less than it first appears when alll factors are takein into account. Around here, a high-side average would be a minister earning $50K, with $20K being designated H&U allowance. (only a few would fall above that figure - most would fall below it). He's in 15% Fed tax bracket and a 5% state tax bracket, unless his spouse works and has a very high income. So if they spend the entire H&U allowance, and it doesn't exceed FRV, then they are saving about $4,000 in taxes. BUT they pay the matching SocSec/Med on the entire $60K, so they're paying $4,800 more in SocSec/Med tax. They would be better off if the church could treat them as an employee, paying the matching SocSec/Med tax and foregoing the H&U deduction.

There are some ministers who exempt them selves from SocSec/Med, and that's a different thing altogether. But in my experience that's a relatively small number.

Another question would be, do you get any tax benefits on your return that others don't get? Maybe a home mortgage interest & property tax deduction that a renter doesn't get, even though they are technically paying it via their reant payments? Is that fair or unfair? Is it fair for members of the military to get essentially the same H&U exclusion that ministers get, and if the H&U deduction for ministers goes away, should it be taken from members of the military as well?

[veritas]

second residence

My information was dated. In the Driscoli tax court case it was allowed but subsequently overturned.

[veritas]

I think you're exaggerating the magnitude. If they're excluding second homes, they're breaking the law. Their tax preparer should inform them of that fact. $50K seems a little high, although not out of the question provided the home is in an area where it would rent for about $4,900 per month. Remember, the exclusion cannot exceed the Fair Rental Value of the home, regardless of how much is set aside and regardless of how much they actually spend.

How about 25% federal and 9% state times 30k? That's a cool 10,200.

How many clergy returns do you prepare, and how many derive any significant net tax benefit from the H&U exemption? Especially since they pay the matching SocSec/Medicare on their entire income, including the H&U allowance? The net tax benefit truly ls less than it first appears when alll factors are takein into account. Around here, a high-side average would be a minister earning $50K, with $20K being designated H&U allowance. (only a few would fall above that figure - most would fall below it). He's in 15% Fed tax bracket and a 5% state tax bracket, unless his spouse works and has a very high income. So if they spend the entire H&U allowance, and it doesn't exceed FRV, then they are saving about $4,000 in taxes. BUT they pay the matching SocSec/Med on the entire $60K, so they're paying $4,800 more in SocSec/Med tax. They would be better off if the church could treat them as an employee, paying the matching SocSec/Med tax and foregoing the H&U deduction.

I pay both sides of FICA and don't get to deduct my mortgage interest twice and property taxes twice. Not to mention I can't dedcut utilities and homeowner insurance.

There are some ministers who exempt them selves from SocSec/Med, and that's a different thing altogether. But in my experience that's a relatively small number.

Another question would be, do you get any tax benefits on your return that others don't get? Maybe a home mortgage interest & property tax deduction that a renter doesn't get, even though they are technically paying it via their reant payments? Is that fair or unfair? Is it fair for members of the military to get essentially the same H&U exclusion that ministers get, and if the H&U deduction for ministers goes away, should it be taken from members of the military as well?

Renters can buy a home and have the same benefits.

The military thing is your strongest point.

[JohnH]

The renter analogy was in response to this part of your post:
"It would not be insignificant to me if i were allowed to exempt 50k from federal taxes. I recall once a pastor saying how much he liked giving and was going to increase his giving to 20%. I couldn't help think how much easier it would be for us if we could exempt a large share of income from taxes (not to mention exemption from fica taxes in some cases)"

I view that as the old "it isn't fair" response. Over the years I've heard it many times from church members who resented the fact that the pastor got a tax break they didn't get. Yet they were exempting all or part of tax-free muni income, interest on second homes, tax-favored rental income, capital gains income, dividend income, etc, and they didn't think it at all unfair that other people didn't get to enjoy these tax breaks that they received. And most of them didn't like it when I pointed out their double standard to them, either. But hey, somebody's got to put this stuff in perspective.