Fr. Martin Fox blogs about filling out his income tax forms as the deadline approaches to pay off Uncle Sam for another year. Non-clergy readers may not know how bad priest have it.
For one thing, they do have to pay income tax; they are not exempt as religious clergy. And I don’t know if this is true in all dioceses, but in some priests are treated as employees when that benefits the diocese and as subcontractors when that does. For example, they have to pay all of their Social Security taxes as if they were self-employed. And they don’t get paid all that much to begin with.
Just completed my taxes: federal, state, school tax, city tax. Refunds for school and state taxes don’t cover the bill due to Pharaoh.
You may not realize your priest has to pay taxes on the house the parish gives him to live in. That counts as income, along with all meals provided.
The federal forms are pretty straightforward, although the worksheets for Schedule D (that’s what you get to fill out if you have investments or mutual funds, and you get a form detailing things like “capital gains,” “modified capital gains,” and something called “unrecovered section 1250 distributions” or something like that).
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The City of Piqua forms are the worst. Get this: last year, I got my form back, because I made a mistake. Okay—so I got a refund. Great, huh? But the refund was reduced by the amount of the penalty … I read the letter three times—couldn’t figure out what the penalty was for, and why I paid a penalty when I overpaid my taxes …
So this year, I just put a lot of squiggles everywhere, and I’ll wait until they tell me my taxes—the $25 penalty counts as a tax-preparation fee.
The state of Ohio’s tax forms were, in contrast, fairly simple and clear. In fact, the state enables you to file online, and it’s very user-friendly. No surprise, I guess, that the state is really, really good at soaking us with taxes, since we can’t get industry to move here.
Total time? Three and a half hours. Not too shabby.
Fr. Fox provides a real service to the community by detailing on his blog what a parish priest’s life is like in the daily minutiae. Too many folks think they sit around all week writing their homily for Sunday and that’s it. I know the reality is vastly different, having lived in a parish rectory for six years.
Just last week I was envying our religious sisters who DON’T have to deal with this stuff, not possessing income or goods. Ah, the freedom of religious life!
It seems unfair that our diocesan priests don’t get less of a break, especially considering how few of them every spend any of the little they have on themselves, except for survival! Hopefully, our religious priests don’t have to pay taxes?
Thanks for writing this Dom. Another element that is here is that our social security taxes are based on our salary plus rectory, etc. So not only are we taxed at a higher rate, but we are taxed on amounts more than we actually get paid.
By the way, this is not a Catholic thing, this is the rule with all professionals who live under the same system, that includes ministers who live in a parish supplied house. It is also true that those who are in religious orders are exempt from all of this because they own nothing and are paid by the order.
All employees in this country pay social security and medicate taxes. In the case of traditional employees, the employer picks up one half of this cost. However, when employers consider what they will pay an employee, they most definitely take this into account and if there was no social security tax, each of us would receive more money. Therefore, priests do not ultimately pay more than anyone else, they simply are responsible for tendering both halves themselves. In my archdiocese, the priests receive an additional allowance for this additional cost.
In addition, a priest or minister’s housing expenses are not taxable for income tax purposes. They are only taxable for social security and medicare purposes. This is a tremendous benefit that non-minister Americans do not have.
Priests do not pay more tax than anyone else. In fact, they pay less.
I’m sorry Gary but it’s a bit naive to assume that if there were no Social Security contribution that employers would simply give employees the difference. Certainly priests in most US dioceses are not given the difference or allocated extra to pay for it.
And a priest’s housing and food are most certainly taxable and considered income for purposes of figuring taxes. Your profile says your location is England. Are you sure you’re talking about the US?
It is not naive to realize that employers determine how to compensate employees based on the employer’s overall cost. When an employer is considering whether or not to higher someone and what the total cost will be, they most definitely factor in non-wage costs such as payroll taxes. If the payroll tax paid by the employer was to be eliminated, it is not naive to think that most American employees would be compensated higher.
Archdiocese and parishes most certainly factor in this cost when determining compensation of priests.
American priests have more discretionary income than most Americans and are in no position to complain about their financial renumeration.
Clergy parsonage allowances are most definitely not taxable for income tax purposes. They are taxable solely for self-employment (payroll tax purposes). This is a tax benefit given only to clergy and not to all Americans.
IRC Code SEC. 107. RENTAL VALUE OF PARSONAGES.
In the case of a minister of the gospel, gross income does not include—
107(1) the rental value of a home furnished to him as part of his compensation; or
107(2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.
Apparently there is a difference of opinion on how to interpret the tax code because every priest I’ve talked to, including Fr. Fox linked above, said they have to pay taxes on their housing as income.
The law could not be clearer.
Clergy do not pay income tax on their housing allowance or value of housing they receive. See Code Section 107.
They do pay payroll tax (otherwise called self-employment tax) on this benefit however which is the cause of confusion.
The bottom line is that clergy (priest, deacons and other ministers) receive more favorable treatment than do non-clergy.
If Fr. Fox is paying income tax on his housing, he should file an amended tax return to get back the income tax he erroneously paid. He can send me a cut of the refund at his leisure.
GKC: please enlighten me as to how “payroll tax” is different from “income tax.”
Fr. Clark:
The payroll tax is simply that portion of social security that the self-employed have to pay themselves. That other half. Your income tax is, well…your income tax.
Everyone has to pay income tax. Only the self-employed have to pay payroll taxes – that other half. *All* self-employed (like Dom, I would assume) have to pay it.
The payroll tax is social security and mediare tax.
Income tax is federal income tax.
They are separate taxes.
Clergy receive more favorable tax treatment than other US taxpayers for the resons outlined above.
While accountants and bureaucrats might argue the distinction the reality is that both are paid out with no expectation of return. Anyone under the age of 55 in this country who thinks they’re going to get anything from Social Security when they retire is kidding themselves. Plus priests get full health coverage from their diocese so Medicare is moot.
In addition, like I said above, they pay both the individual portion that regular employees pay plus the self-employment/employer portion as well.
You keep claiming that clergy receive favorable treatment over other US taxpayers, but they don’t.
Domenico,
You are wrong on this one. Clergy who do not have a parsonage or rectory to live in commonly receive a housing allowance along with their salary. No FIT is paid on the value of the rectory or the housing allowance to the extent that there are receipts to offset it for utilities, mortgage interest, rent, maintenance, etc.
Of course, this is a BIG deal for a clergyman with a family and a middle class house.
FICA is another matter. Historically, clergy could chose to be in or out of Social Security but once they went in, they were in for good. The consensus today is that it was unfortunate for so many priests and religious in the past not to have participated.
The tax law in the case of housing was justified on the theory that the clergyman determines his residence under obedience to his superiors for the convenience of his church. This fits some denominations well (methodist-style polity especially) and for other denominations it is a poor fit but a generous tax break.
The tax law for clergy is complex. It would be great for one of Fr. Fox’s parishioners with the requisite skills to take over this task so he could hear confessions, work on his sermons or give more attention to his blog (smile).
Charles,
Maybe in your diocese the priests are given a housing allowance. Not in Boston. And they are indeed required to consider the housing as income. Unless every priest I’ve talked to about this—and their tax preparers—are wrong too.
To answer the question:
As I read the tax law, my housing is taxable for social security, but not income tax. That is what Mr. Chesterton is saying, I think, and he’s right. I’m sorry if my post gave any other impression.
I don’t agree, however, that I am paying less taxes, although the reason isn’t necessarily because I’m a priest. Before I was a priest, I owned a house, and that was a great tax deduction. I don’t have that tax deduction now; it’s basically unavailable to me. My tax bite is higher now, as a share of my income, than it was then. That, of course, happens to others who are not priests.
I think if you read my post, I didn’t utter the words “unfair,” as in, I have it harder than others—I simply said they took a painful bite.
And I know people who don’t realize priests pay any taxes . . . at all; so I was letting people know that we do—including on the housing and food allowances.
And, as to my having more discretionary income; maybe other priests do; I don’t. My parishes don’t have a lot of money, we’re trying to keep our school open.
If Mr. Chesterton is under the impression priests get commensurate pay to folks in other professions, I don’t know how he arrives at that. I can tell you I certainly don’t.
I’m not complaining, I surely didn’t become a priest for the money! But I simply can’t let the idea go by that priests are paid in a way that would be comparable to other professions, say based on skill, or education, or responsbilities.