The Magazine of The Evangelical Lutheran Church in America


Clergy tax-free housing allowance unconstitutional

A federal judge on Nov. 21 ruled that an Internal Revenue Service exemption that allows clergy to shield a portion of their salary from federal income taxes is unconstitutional. 

The clergy housing exemption applies to an estimated 44,000 ministers, priests, rabbis, imams and others. If the ruling stands, some clergy could experience an estimated 5 percent to 10 percent cut in take-home pay. 


The suit was filed by the Wisconsin-based Freedom from Religion Foundation on grounds that the housing allowance violates the separation of church and state and the constitutional guarantee of equal protection. 

U.S. District Court Judge Barbara Crabb ruled in the foundation’s favor, saying the exemption “provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise.” The case, decided in the Western District of Wisconsin, will likely be appealed to the 7th U.S. Circuit Court of Appeals in Chicago.

The housing allowances of pastors in Wisconsin remain unaffected after Crabb stayed the ruling until all appeals are exhausted. 

Churches routinely designate a portion of a pastor’s salary as a housing allowance. So a minister who earns $50,000 may receive $16,000 as a tax-free housing allowance, essentially earning $66,000. Having to pay taxes on that $16,000 ($4,000 in this case), would mean a 6 percent cut in income. The exemption is worth about $700 million per year, according to the Joint Committee on Taxation’s Estimate of Federal Tax Expenditure.

Tobin Grant, a political science professor at Southern Illinois University, Carbondale, said the exemption dates from an era when clergy lived in church-owned parsonages.


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