“Neither Commanded Nor Proscribed”: A US Appeals Court Keeps the Tax-Free Housing Allowance for Clergy

• An atheist group challenged the tax break that lets ministers avoid tax on housing costs
• A three-judge federal appeals panel ruled unanimously that the break is constitutional
• Congressional estimates put the cost at roughly $700 million a year
• Between 200,000 and 300,000 US congregations provide a housing allowance

Ministers in the United States can keep receiving their housing money free of federal income tax after a federal appeals court rejected a challenge to one of the most valuable tax breaks available to clergy, Religion News Service reported in March 2019.

The case was brought by the Freedom From Religion Foundation, a group that argued the exemption unfairly favoured religion. A lower court in Wisconsin had agreed with the foundation, but on 15 March 2019 a three-judge panel of the 7th US Circuit Court of Appeals reversed that decision unanimously. Under the rules at issue, clergy do not pay tax on housing supplied by their congregations or on the portion of their salary set aside for housing costs.

Writing for the panel, Judge Michael Brennan rejected the argument that the provision entangled government and religion in an unconstitutional way. “But only excessive entanglement violates the Establishment Clause,” he wrote. He concluded that the tax provision “falls into the play between the joints of the Free Exercise Clause and the Establishment Clause: neither commanded by the former, nor proscribed by the latter.”

The stakes are considerable. According to the report, the Joint Committee on Taxation estimates the exemption costs about $700 million a year, and somewhere between 200,000 and 300,000 of the roughly 384,000 congregations in the US provide housing allowances to their clergy. Annie Laurie Gaylor, co-president of the foundation, was unmoved by the ruling: “The housing allowance is so clearly a handout to churches and clergy,” she said. Erik Stanley, senior counsel at Alliance Defending Freedom, welcomed it, saying: “Refusing to tax a minister’s housing expenses is simply the best way to ensure the free exercise of religion.”

For many small congregations, the allowance is what makes a pastor’s pay workable. A church that cannot offer a large salary can still structure part of it as housing money, allowing a minister to rent or pay a mortgage with untaxed income. Losing the break would have landed hardest on modest churches rather than wealthy ones.

Jamaican-led churches in the US, and pastors who serve diaspora congregations in cities such as New York and Miami, operate under these same rules, so the ruling directly affects how their ministers are paid and housed. For churches in Jamaica weighing how to support pastors who cannot afford to buy or rent near their congregations, the case is a reminder that clergy housing is a financial question as much as a pastoral one, and that how a stipend is structured can matter as much as its size.

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