“Could you believe the gall of that guy?”

We were coming out of a rather dreadful sermon on giving in our small, startup church. We were a congregation of mostly very low earners — even me at the time — and money going into the church was tight. The pastor decided it was time to kick us for not giving more. It was a lousy stewardship sermon but you here these all the time as a churchman. So I was a bit baffled why Pete was so ticked off and I told him so.

“Didn’t you hear him complaining about his salary?” he asked. “He was up there telling us that even though we only pay him $45k he gives 10% because he is so committed to doing what God says. But according to the budget we saw last week he’s costing us a lot more than that. Something more like $75k.”

I couldn’t figure it out because, although he had many problems, the pastor was pretty honest. But when I looked at the budget, Pete was right: the pastor’s total compensation (TC) — which didn’t include our side of his employment taxes — looked a lot more like $75,000 / year.

It turns out that it has to do with the funky way that clergy get paid. You can’t just compare their salaries with the non-clergy’s. Pastors have special tax codes that you don’t. Our pastor’s TC included the following:

• Salary
• Housing allowance
• Car allowance
• Book allowance
• Continuing education allowance
• Required donation to his retirement fund (as a percentage of his salary, paid for by the church and not taken from his salary)
• Health insurance

You can see that his compensation was not simple, even at a poor startup church! Housing allowance? Car allowance? The more I looked at it the more I too was bothered by his sermon. I worked for myself: my housing, car, retirement and car all came out of my “pre-tax” income. If I subtracted them, I might be close to zero that year. What was going on with the pastor’s compensation?

These aren’t what you are used to if you’re not clergy so let’s go over them.

And I’ll be honest: I thought I would explain it but after spending a lot of time looking into it, I’m still not straight about it. You almost need a specialist accountant.

The most important is the Housing Allowance. This isn’t just to pay your house note. The IRS (“Topic 417 – Earnings for Clergy“) notes:

A minister who receives a housing allowance may exclude the allowance from gross income to the extent it is used to pay expenses in providing a home. Generally, those expenses include rent, mortgage interest, utilities, repairs, and other expenses directly relating to providing a home.

Other websites say that this can expand to include furniture, pictures, carpet, almost everything in your house. I wonder if you can include the cost of food for the “church gatherings”, which if you have a small church and a largish family, could include almost all your family meals.

According to my accountant, a minister here in the region successful got the housing allowance for his vacation cottage. So you can use it pretty freely.

If you just add up the housing costs, you can save a bundle if they can be pretax. Even if you live as frugally as I do, it can still pay off. You may even be able to deduct all these costs, or those that aren’t in the housing allowance. It’s really weird.

Then there’s the whole issue of Social Security and Medicare (FICA) taxation. It’s weird enough on it’s own but the clerical regulations are bewildering.

The car allowance at least is pretty normal. It should be treated like an advance against an expected expense that requires record-keeping. In reality, this doesn’t always happen as the IRS isn’t all that interested in going after clergy regardless of who is president. And there hasn’t been a non-churchman in the White House since Ronald Reagan.

Senior Pastors don’t even earn that bad of an income, once you include the housing allowance and all “love offerings”, especially at megachurches. The issue is getting to that point, which is only the very top of the field. Of course, some denominations pay better than others (the Presbyterian ministers supposedly average $75k+ pa) and some pay horribly until you become a senior pastor, running your own group of ministers. Sole pastors seem to make very little. Many Evangelical groups expect young seminarians to cut the pastoring teeth in youth ministry, and this pays abysmally.

Even with all of these deductions, additions, freebies and potential, I’m going to call it that spending money on seminary is stupid. Find a denomination that pays your way or that does some form of Local Licensure like the United Methodists so you can pay your way through over time.

For the major Reformed denominations, seminary has to be one of the worst ways you can be a good steward of your money. Which you would think the Dutch would be concerned about.