Since 1954, a tax rule has allowed a “minister of the gospel” to be exempt from income tax on compensation that is part of a housing allowance. The term “minister of the gospel” has been interpreted broadly to cover a whole range of religions and not restricted to Christian ministers. The Freedom from Religion Foundation challenged this law on the grounds that it discriminates against secular employees by giving religious employees better treatment. In the suit, Gaylor v. Mnuchin, Annie Laurie Gaylor and Dan Barker, who are founders of the Freedom from Religion Foundation filed their taxes with a housing allowance and were denied the claim by the IRS because they specified that they were not “ministers of the gospel” as the tax law requires.
Early in October, a Wisconsin federal district judge struck down the minister’s housing allowance saying that it violates the First Amendment Establishment Clause and is therefore unconstitutional. “In reaching this conclusion, I do not mean to imply that any particular minister is undeserving of the exemption or does not have a financial need for one,” Judge Crabb wrote. “The important point is that many equally deserving secular employees (as well as other kinds of religious employees) could benefit from the exemption as well, but they must satisfy much more demanding requirements despite the lack of justification for the difference in treatment.”
This could have a large impact on the wallets of “ministers of the gospel.” The benefit saves $800 million a year in taxes for those who receive it. What does this mean for pastors? For now, a stay of the order has been granted pending appeal, however; the implication is that unless the judgment is reversed by the Seventh Circuit or the U.S. Supreme Court, pastors in Wisconsin, Illinois, and Indiana will initially lose their housing allowance and eventually, all “ministers of the gospel” will lose it.