Hmmm. Interesting post. Shameful? Methinks that's a bit strong.
I sure didn't mean for this to turn into a philosophical conversation. I was originally just trying to provide some feedback on the why's and wherefor's of opting out and provide a bit of guidance on how to figure the amount subject to SECA tax. However, I recognize that it can be a hot button issue. Here's one person's perspective.
Coming from a pastor it might suprise you, but I agree that the original rationale for housing allowance has long since vanished. Once upon a time when most clergy were paid a pittance and provided tremendous service to the community-at large (not necessarily restricted to their local congregation) it may have been justified. For better or worse that is simply no longer the case. The housing exclusion almost disappeared in 2002. After considering the Warren case the 9th Circuit seemed poised to declare it unconstitutional but Congress bowed to pressure and rushed through a compromise that kept it alive. Frankly, I think it should disappear. There would be wailing and gnashing of teeth but I simply don't see how it can continue to be supported from a public policy perspective.
As for the opting out issue, I respectfully disagree. It is an option only for those who have a constitutionally protected objection. It has been sustained by the courts on that basis. In all honesty, if the option were not there I would probably not lose sleep over it but it is there and I do hold that conviction. I realize that others hold equally valid convictions about other matters (e.g., opposition to the war, ecological issues, etc) and are not similarly given the opportunity to opt out of tax payment (there are a few I'd like to take an adjustment on!). On the other hand, they do not voluntarily forfeit all the benefit that their tax 'purchases'. Some would argue that they want to opt out on only a proportional basis. The courts have consistently said that is not permissible. Taxpayers can't arbitrarily pick and choose on their tax return which policies they will support. However, they can (and should) take advantage of every legal option available to them in the form of deductions, exclusions, etc.
There is another side to this whole thing. Clergy have a unique 'dual tax status'. That is, they are almost always considered an employee for income tax purposes but are always considered self-employed for social security tax purposes. Now this is where it gets interesting. The vast majority of clergy do not opt out meaning they have to pay the higher self-employment social security tax. And guess what. For the typical full time clergy that higher social security tax is just about equal to the savings they realized from their housing allowance. It's just about a wash. What Congress giveth, Congress taketh away! For most clergy there is little or no net tax savings. If the average person in the pew is worried about their pastor making a killing on their tax return, they're worrying for nothing. After more than 25 years in the ministry I can honestly say I have not run into more than 2 or 3 people who thought clergy were unfairly advantaged tax-wise. The icing on the cake is that our clergy clients get the 'benefit' of paying us a few extra bucks to add a Sch SE to their tax return and to figure the legally excludable amount of their housing.
Back to the housing exclusion. There are dozens of deductions that benefit a lot of select groups. The mortgage interest deduction for example. Why mortgage interest and not other kinds? Why are state and local income taxes deductible and not other taxes? The answer is that our elected officials made conscious decisions to include or exclude based on public policy. Once upon a time they made the decision to exclude clergy housing. It was no more or less arbitrary than other exemptions. I have already granted you that (IMO) the public policy rationale has long since disappeared and that the only reason it still exists is political expediency. Frankly, I fault the Congress for that, not the clergy. As long as there is a valid exclusion/deduction just about every eligible taxpayer I know of is going to avail him/herself of it. I'm not sure many would consider taking advantage of a valid exclusion 'fudging'. Like most of you I look for every valid means I can find to save my clients money on their tax return. Like most of you I personally take advantage of every valid means to minimize my own tax bill. Anyway, that's my two cents worth.
I sure didn't mean for this to turn into a philosophical conversation. I was originally just trying to provide some feedback on the why's and wherefor's of opting out and provide a bit of guidance on how to figure the amount subject to SECA tax. However, I recognize that it can be a hot button issue. Here's one person's perspective.
Coming from a pastor it might suprise you, but I agree that the original rationale for housing allowance has long since vanished. Once upon a time when most clergy were paid a pittance and provided tremendous service to the community-at large (not necessarily restricted to their local congregation) it may have been justified. For better or worse that is simply no longer the case. The housing exclusion almost disappeared in 2002. After considering the Warren case the 9th Circuit seemed poised to declare it unconstitutional but Congress bowed to pressure and rushed through a compromise that kept it alive. Frankly, I think it should disappear. There would be wailing and gnashing of teeth but I simply don't see how it can continue to be supported from a public policy perspective.
As for the opting out issue, I respectfully disagree. It is an option only for those who have a constitutionally protected objection. It has been sustained by the courts on that basis. In all honesty, if the option were not there I would probably not lose sleep over it but it is there and I do hold that conviction. I realize that others hold equally valid convictions about other matters (e.g., opposition to the war, ecological issues, etc) and are not similarly given the opportunity to opt out of tax payment (there are a few I'd like to take an adjustment on!). On the other hand, they do not voluntarily forfeit all the benefit that their tax 'purchases'. Some would argue that they want to opt out on only a proportional basis. The courts have consistently said that is not permissible. Taxpayers can't arbitrarily pick and choose on their tax return which policies they will support. However, they can (and should) take advantage of every legal option available to them in the form of deductions, exclusions, etc.
There is another side to this whole thing. Clergy have a unique 'dual tax status'. That is, they are almost always considered an employee for income tax purposes but are always considered self-employed for social security tax purposes. Now this is where it gets interesting. The vast majority of clergy do not opt out meaning they have to pay the higher self-employment social security tax. And guess what. For the typical full time clergy that higher social security tax is just about equal to the savings they realized from their housing allowance. It's just about a wash. What Congress giveth, Congress taketh away! For most clergy there is little or no net tax savings. If the average person in the pew is worried about their pastor making a killing on their tax return, they're worrying for nothing. After more than 25 years in the ministry I can honestly say I have not run into more than 2 or 3 people who thought clergy were unfairly advantaged tax-wise. The icing on the cake is that our clergy clients get the 'benefit' of paying us a few extra bucks to add a Sch SE to their tax return and to figure the legally excludable amount of their housing.
Back to the housing exclusion. There are dozens of deductions that benefit a lot of select groups. The mortgage interest deduction for example. Why mortgage interest and not other kinds? Why are state and local income taxes deductible and not other taxes? The answer is that our elected officials made conscious decisions to include or exclude based on public policy. Once upon a time they made the decision to exclude clergy housing. It was no more or less arbitrary than other exemptions. I have already granted you that (IMO) the public policy rationale has long since disappeared and that the only reason it still exists is political expediency. Frankly, I fault the Congress for that, not the clergy. As long as there is a valid exclusion/deduction just about every eligible taxpayer I know of is going to avail him/herself of it. I'm not sure many would consider taking advantage of a valid exclusion 'fudging'. Like most of you I look for every valid means I can find to save my clients money on their tax return. Like most of you I personally take advantage of every valid means to minimize my own tax bill. Anyway, that's my two cents worth.
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