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Thursday, October 7, 2010

"Parsonage Allowance" and other Tax Advantages Available to Clergy

Creflo Dollar's "Parsonage"

The "Parsonage" on the Inside
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."


  1. Stumbled across your blog on a different topic, but I'll comment on this one. Obviously, I'm not going to defend those who are working the system -- not just limited to wealthy ministers, by the way.

    The whole point of tax exemption is to recognize that religious organizations contribute to our society in a way that reduces our overall tax burden. Generally, they help the poor, feed the hungry, etc. It could probably be argued that in some places that they contribute to crime reduction and drug use prevention as well. This benefit isn't just for Christian organizations (all your examples were Christian), but apply to all faiths.

    Does this violate church and state? I don't think so. Church and state is more about preventing the establishment of a state religion -- in this case, it doesn't seem to be promoting one above another.

    Ministers aren't the only group of people exempt from social security taxes. Teachers are another large group that are exempt. I think it should be noted that it's not that these groups collect free social security after they retire -- they don't -- it's that they can have their own retirement systems set up for them by various organizations. If they did pay taxes, there would be the additional cost of those checks as well. Not sure that would provide any net benefit to the government in the long term.

    1. Teachers are not exempt from paying Social Security taxes. Where are you getting your information?

  2. Debbie,

    Thanks for posting. Yes, I understand the rationale behind the tax exemption of churches but I think that the great majority of the money, at least in the US, goes to maintain buildings and pay salaries. Very little goes to anything else. There are exceptions of course but I live in the Bible belt and we have churches on every street corner. Many of these have enormous buildings which are used once or twice a week. Is that a good investment of money? Shoud the tax payers be subsidizing that? There is a brand new Hindu temple about 15 miles from my house which cost over $21M. It is magnificient. I have toured it but it irks me that my tax money subsidizes it. I also felt like asking the people at the temple, how many starving people in India could be fed with $21M.

    Regarding Social Security, yes some others are allowed to opt out--including Congress. If a person took what they paid into Social Security and invested it in a 401K they would have far more money than they would ever receive from Social Security. Any one with good financial sense would prefer to opt out. My point is that its not fair.

  3. Is it possible to find out how much of a church's income actually goes toward feeding the hungry and helping the poor? Is it just assumed that they are doing those things, or do they actually have to show that they are?

    If they are giving zero to help the poor and feed the hungry, do they still get the exemptions, etc.?

    With charities, you can find out what percentage of your money actually does help people, right? My understanding is that churches get these breaks-not because they are charitable-but simply because they are a religion.

  4. Couldn't you look at churches like you would a charity? If the church said, well, we give 15% of our funds to help people. How impressive would that be compared to an actual charity?

  5. Lynn,

    You are correct. Churches are exempt because of religion not because they are a charity. Churches do not have to file anything with the IRS. They are not accountable to anyone except perhaps their own members and in many cases the members are also in the dark on where the money goes.

    The largest Protestant denomination, the Southern Baptist Convention, took in $10.4 billion in offerings in 2006. The great majority of this money went to pay for buildings, property and employee salaries. $5 million went to the World Hunger Relief fund. This sounds impressive until you realize that it averages about 30 cents per member for the year (16.3 million members).

  6. Here is the link where I got the above numbers.

    Here is another link that discusses how SBC executives sign a pledge not to reveal their salaries.

  7. This is one of the reasons the Catholic Church became so powerful. Their main employees take a vow of poverty, do not leave their "money" to heirs because they don't have any. And the church owns vast tracts of land. Maybe they have to pay out large settlements these days, but for hundreds of years they took in major wealth and paid out very little.

  8. How do I become a Southern Baptist minister?

  9. Clare,
    I could be mistaken, but to be a Baptist minister you just need to declare yourself "called by God" and see if a congregation will hire you.

    Like I said, if there is any other requirement, I'd love for someone to inform me, and I will stand corrected.

    Wait! You're a woman, so that wouldn't work. But I think it does work that way if you are male.

  10. In a review of an important new book about religion in America, Robert Wright puts the central issue very well: “There are two basic schools of thought on religious strife. Essentialists believe that religions have a firm character, grounded in Scripture and theology and doctrine, and that religious conflicts are thus deep-seated and enduring. The more optimistic view is that clashing beliefs aren’t the big problem; underlying the conflict, and driving it, are less ethereal and in some cases more pliable issues: economic grievances or insecurities, resentment of perceived arrogance, fears of domination (like the perceived threat of Western cultural or political hegemony, or of worldwide Shariah).”

    If it’s true that Islam has an essence, and that it’s to found in or near, say, the sword verse of the Our’an [though even this notorious verse has its ambiguties], then every upstanding and normative Muslim is our enemy, and we’d better get them before they get us. But fortunately, the evidence weighs heavily in favor of the optimistic view.

    And us Ken Puiliam fans may be interested in

  11. It is no longer limited to a single home. Phil Driscoll of "Mighty Horn Ministries" was allowed to exclude $195,000 for the parsonage exclusion on his second home.