Written by Don Byrd
USAToday profiles a lawsuit brought by the Freedom From Religion Foundation challenging the housing allowance for ministers. They claim the practice improperly treats church employees differently from those of other non-profit organizations. Ministers interviewed for the piece explain why this allowance makes sense.
[S]upporters of the clergy housing allowance say the exemption is needed to make sure clergy, who pay self-employment tax, are treated fairly by the government.
The housing allowance is part of a complicated set of rules that govern how ministers and other clergy pay federal income tax.
Ministers such as the Rev. Tom Crow, executive pastor of First Baptist Church in downtown Nashville, are considered to be self-employed, even though they get a church salary.
So they pay federal income tax and self-employment tax. But ministers can label part of their salary as a tax-free housing allowance, which offsets the self-employment tax, Crow said.
“It’s basically a wash,” he said.