“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 low earners — even me at the time — and money was going to be tight, even if everyone did their Biblical 10% (even pre-tax). The pastor decided it was time to kick us for not giving more.
It was a lousy stewardship sermon but you hear 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.”
I agreed that with a lot of our people, $45,000 per annum was a princely sum and probably put him into the top earners category for our little faith community.
Pete snorted his disgust.
“According to the budget we saw last week he’s costing us a lot more than that,” he said. “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 per 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.
And even finding the average pastor salary is very difficult because of all the hidden and arcane deductions and allowances in the US tax code.
Our pastor’s total compensation (TC) included the following:
- 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. (I told you it was a bad year.)
If you’re not clergy you may have no idea of the various tax deductions, freebies and payment options open to the Ordained, so let’s go over them. Maybe you can get a clearer picture of what clergy cost, how you can pay yours more equitably, and how to reduce your total compensation costs while still providing them with the same general “income”.
(And I’ll be honest: after spending hours and hours looking into it, I’m still not straight about it. You almost need to be a specialist accountant.)
The most important clergy-spefic element 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 successfully applied the housing allowance for his vacation cottage and made it through IRS review. 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.
Please understand that this loophole is absolutely not available for you as a non-clergy person. Or maybe it’s non- “religion worker”. When I lived and worked abroad, the IRS made it clear that any housing that was provided, unless it was categorized as a temporary housing situation under Travel, would be counted against me as compensation.
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. Apparently clergy can opt out of FICA. They may need to do this in order to get the housing allowance, so check with your church accountant.
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 which party is in power. And there hasn’t been a non-churchman in the White House since Ronald Reagan. (Although since moving to Washington, Obama seems to go about as often.)
Senior Pastors don’t earn that bad of an income, especially at megachurches, once you include the housing allowance and all “love offerings” — which are almost always somehow done in cash. The issue is getting to that point, which is only the very top of the field.
And some denominations pay better than others — Presbyterian ministers supposedly average $75k+ pa — and some pay horribly until you become a senior pastor, running your own group of ministers. Solo pastors seem to make very little.
(Many Evangelical groups expect young seminarians to cut their pastoring teeth in youth ministry, and this pays abysmally, often far below the poverty line. I’ve always found this odd in conservative groups, because it means that a father who is a youth minister won’t make enough to keep his family off welfare, forcing the wife (who supposedly should be at home raising the children) into the workforce. The compensation scheme encourages leaders to violate the very principles espoused for everyone else.)
Now let’s look at seminary, a requirement for clergy at many churches.
Even with all of these deductions, additions, freebies and potential for socking it away when you get to the top, 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. 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.
Hopefully this information about average pastor salary will help you as you make your decisions about your local clergy compensation.[Here’s a neat last thing to try for those who go to a megachurch: ask to see a budget detailing the compensation costs. They almost invariably won’t show it to you. You can then make a request for their National Association of Evangelicals transparency information. See how much you can find out and then map out how everyone is related to each other and how much money the church is giving to different families.]
Featured image credit: One of the pastors of the Free-Will Baptist Church preaches to his congregation. Wheelwright Junction, Floyd County, Kentucky. 1946. By Russell Lee. NARA.