A federal appeals court has upheld the tax provision that allows ministers of all faiths to continue receiving housing allowances. As many had predicted, the court rejected an atheist group’s lawsuit seeking to strike down the law that had been in effect for 60 years.
The Seventh Circuit Court of Appeals in Chicago said the atheist group lacked standing, the legal right to sue, because they were not seeking an allowance for themselves. The court panel did not address the constitutionality of the housing allowance since the plaintiffs did not legally qualify to bring the suit.
Here are some of the salient points I continue to share with ministers:
- The ruling at district court last year made housing allowances unconstitutional. Last year, U. S. District Judge Barbara Crabb of the Western District of Wisconsin ruled unconstitutional a provision in the U. S. tax code that allows ministers to declare some or all of their ministerial income as a housing allowance. That allowance is not subject to federal income tax. This new ruling reverses her decision.
- The housing allowance law was passed by Congress in 1954. Subject to certain guidelines, ministers are able to declare a portion of their ministry income as a housing allowance that is not subject to federal income tax.
- There is no doubt that ministers have benefited from this law. Many churches have as well, particularly smaller churches. The smaller churches are able to pay a minister a salary that has greater take home pay than a non-ministry counterpart. They are thus able to afford to pay pastors that they could not have afforded otherwise.
- The amount a minister can take as a housing allowance has clear guidelines. Make certain you stay within those guidelines and do not abuse the tax privilege.
This ruling is very positive for those who take housing allowances. Though we cannot predict what challenges may come in the future, ministers certainly can take the allowance now without fear of reprisal from the Internal Revenue Service.
Please feel free to share your thoughts on this ruling.