Sunday, October 17, 2010

"Parsonage Allowance" and other Tax Advantages Available to Clergy

The IRS allows "ordained ministers" who are employed by a religious institution to exempt the money they pay to maintain a residence from taxation ("Parsonage Allowance").  This is not a deduction but an exemption (full amount is substracted from income).  The only limit on the amount is the "fair market rental value" of the house. So, a Mega Church Pastor, such as Creflo Dollar (or Eddie Long, or T.D. Jakes, or Rick Warren, or Joel Osteen or whoever), can exempt the fair market rental value on his home from his income. Fortunately he can only do this for his primary residence (as they usually own several homes).

Let's say that the Pastor's primary residence is valued at $5 million. A general rule of thumb for fair market rental value is 1% of the value of the home. In this case, it would $50,000 a month or $600,000 a year. That money is exempted from his income. He doesn't have to pay federal, state, or Social Security taxes on it. In addition, if he has a mortgage, he can also deduct the interest paid on it. This amounts to a double deduction but it is legal under IRS rules. Assuming his interest rate was 5%, that would be another $240,000 a year that could be deducted from his income. At this point, he could make well over $850,000 a year without owing any taxes.

If that is not bad enough, as an ordained minister, the Pastor is also allowed to opt out of Social Security. That means a savings of at least another 15% of his income. This is a special privilege available to ministers.

Granted, most Pastor's do not have the income of a Creflo Dollar or a Bishop Eddie Long but they are entitled to the same perks from the Government. This is, in my opinion,  a clear violation of church and state. Why is the IRS giving special tax breaks to religious leaders? It forces every other taxpayer to subsidize religions that they may not believe in.

With the deep debt that the USA is in, we need to look for more revenue sources. One way to get some immediate relief is to quit subsidizing pastors and churches.  Why won't politicians call for eliminating these tax breaks? Because it would be political suicide and most only care about getting re-elected.

We need statesmen today not politicians. Thomas Jefferson, in The Virginia Act For Establishing Religious Freedom, written three years after he penned the Declaration of Independence, said: "to compel a man to furnish contributions of money for the propagation of opinions which he disbelieves, is sinful and tyrannical."

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