Do Churches Pay Property Taxes - "If the church paid taxes," ran a popular claim on social media (hashtag #taxthechurches), "everyone would only pay 3 percent." Other claims put the remittance of tax revenue paid at $76 billion or $85 billion, oddly specific figures that seem to lack meaningful citations but are likely the result of miscalculations.
Magazine. Whether driven by the belief that the government unfairly favors religious institutions, opposition to wealthy celebrity pastors, or the hope that synagogue taxes can reduce individual tax bills, the tax on religious bodies has been hotly debated online, but barely under the radar. actual elected officials.
Do Churches Pay Property Taxes
But is that true? How much, if any, tax revenue is foregone, and what does the policy look like? Avid Twitter users can enter this debate by faith, not by sight, but let's take a step back from the rhetoric and see what's true, what's exaggerated, and what's completely wrong about the tax treatment of churches and other houses of worship.
Should Property Of Churches Be On Tax Rolls?
Churches, synagogues and mosques, by definition, non-profit organizations and non-profit organizations are not taxed on their net income (like for-profit organizations) for one simple reason: they have no net income. Although the church may have more income than expenses in any given year, it has no owners or shareholders to benefit from an increase in organizational value, receive dividends, or otherwise benefit from the church's income stream.
Imagine if we treated any church residual income as profit and were taxed under the corporate income tax. We will freely allow the church, this rather absurd hypothetical, to "profit" in line with the company (average 7.7 percent). According to Giving USA, religious organizations received $128.2 billion in donations in 2019. For most churches, tithes and offerings make up the majority of revenue, although churches may also have investment income, and a smaller number—especially large churches—may also generate income. Proceeds from sales of books, videos and other materials.
The Giving USA figure is too broad because it covers organizations that aren't houses of worship, but too narrow for our purposes because it doesn't include other revenue streams. To be on the safe side, let's choose an aggressive figure of $150 billion. If we assume a 7.7 percent "profit" rate, that would generate just under $11.6 billion in taxable income (ignoring deductions or exemptions), which would generate a $2.4 billion federal tax liability.
To put that into context, in FY 2021, federal spending totaled $6.8 trillion, with the government earning $3.8 trillion. That's less than 0.04 percent of federal spending and 0.06 percent of federal revenue. This is a rounding error. Also, churches are undeniably non-profit organizations, and it would be difficult - and perhaps unconstitutional - to treat them less favorably than secular non-profit organizations.
For Churches, A Temptation To Sell
Meanwhile, it's important to note that church employees—including pastors—pay personal income tax. Clergymen, pastors, rabbis and priests have the same federal and state income tax liabilities as other employees. This is true of both small church pastors and wealthy evangelists, and it is true of their church income as well as any other income such as book royalties.
Ministers are allowed to exclude housing costs from their gross income for personal income tax purposes, although not for social security tax purposes. Some churches provide a housing allowance as part of the pastor's income, while others may provide housing as a direct part of the minister's compensation.
If the minister lives in the parsonage, the money is taxed as income, but the value of living in the parsonage is not subject to personal income tax. If they receive housing allowance instead, they are allowed to exclude from gross income the lesser of (1) the actual cost of providing housing, (2) the amount designated as housing allowance, or (3) the fair rental value. home
Contrary to common recognition of the church's nonprofit nature, the parsonage allowance is a direct means by which the tax code benefits synagogues and religious ministers, and several prominent legal scholars have attacked its constitutionality. However, it is important to note that the parsonage allowance does not correspond to the luxury homes of megachurch pastors and prominent evangelists. Joel Osteen actually lives in luxury, for example, financed by a profitable ministry with programs, books, DVDs and other materials, but he does not take a salary, so he has no housing allowance. The exemption must be from income actually paid by the church; It's not just a deduction because someone can claim it because they're a minister.
Church & Clergy Tax Guide
It is commonly believed that clergy are exempt from social security taxes, but this is largely incorrect. Ministers have an unusual double tax position, where they are statutory employees for personal income tax purposes, but self-employed contractors for social security tax purposes. So instead of paying FICA payroll taxes, they pay SECA taxes—basically, they pay both employer and employee payroll taxes individually, totaling 15.3 percent in Social Security and Medicare taxes. If they have a parsonage or housing allowance, their SECA tax is paid on a basis that includes the value of the housing.
Religious exemptions from the entire Social Security and Medicare systems are available to ministers if they can demonstrate deep objection to the system itself, but it is used narrowly. There must be a religious principle behind it. The decision is also irreversible: once you're out, you're out and you can't get any Social Security or Medicare benefits. Functionally, this is an extension of the benefits available to the Amish, some Old Order Mennonites and other religious groups that strive to be fully independent religious communities that are completely opposed to all benefit systems (including private insurance!). It is not relevant to the local priest or rabbi.
Churches, like all charities and almost all non-profit organizations, are not subject to local property taxes. Unlike business income tax, this is unavoidable. There is nothing in principle preventing states from allowing local taxation of nonprofit land and buildings, and the nature of property taxes may also argue in favor. Property tax follows the benefit principle, where the tax liability is proportional to the value of government services received by the property owner.
The benefit theory may be weaker with some nonprofits—churches don't benefit as much from public education as households and employers do—but it's still there. And in the case of some nonprofit organizations, such as hospitals and universities, the government's cost of providing services to them can be substantial.
The $1.4 Billion That Doesn't Pay Property Tax
Good estimates of the cost of foreclosures for nonprofits are hard to come by, but a 2006 study found that foreclosures typically represent between 3 and 4 percent of total property values in most cities, but more in select cities like Philadelphia, Boston and New York. . Baltimore, and New York City. This makes sense: the Cathedral of St. Patrick occupies prime real estate in midtown Manhattan, so the land it occupies is very valuable, which may not be true for an evangelical church located in a suburban shopping plaza.
However, most of the exceptions are for hospitals and universities, which have larger footprints. If the state decided to tax nonprofit farms, synagogues would contribute billions to local governments across the country, but since local governments currently collect $560 billion through property taxes, this represents an increase in collections of less than 2 percent. .
The idea that taxing churches raises sufficient federal revenue is false, even ignoring the inconsistency of taxing non-profit organizations. Clergy pay income and salary taxes like everyone else, and local property tax exemptions, though meaningful, are available to all nonprofit organizations. Housing allowance, however, is quite subjective and controversial in legal circles. But overall, the idea that the synagogue somehow emptied the treasury is what the Ten Commandments call "false witness."
Explore our weekly state tax map to see where your state ranks on tax rates, collections and more.
Congregationalism In The United States
Taxes are mandatory payments or fees collected by local, state and national governments from individuals or businesses to cover the cost of general government services, goods and activities.
Tax exemptions exclude certain incomes, revenues, or taxpayers from full taxation. For example, nonprofit organizations that meet certain requirements are granted tax-exempt status by the IRS, preventing them from paying income taxes.
Property taxes are levied mainly on immovable property such as land and buildings, as well as on movable personal property such as vehicles and equipment. Property taxes are the single largest source of state and local revenue in the United States and help fund schools, roads, police and other services.
Payroll taxes are taxes paid on workers' wages and salaries to fund social insurance programs such as Social Security, Medicare, and unemployment insurance. Payroll taxes are Social Security taxes that comprise 24.8 percent of combined federal, state and local government revenue, the second largest source.
Attorneys For Religious Corporations In New York
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