“Play Between the Joints” and Tax Theory: Reflections on Seventh Circuit’s Clergy Housing Allowance Ruling

On March 15, 2019, the Seventh Circuit issued its Gaylor v. Mnuchin ruling, upholding the clergy housing allowance’s constitutionality.  This decision astutely recognizes that the fundamental questions in this case fall in a jurisprudentially gray area, or within the “play in the joints” between the First Amendment’s Free Exercise and Establishment clauses.  Between these two foundational pillars of our liberal democracy, the Court’s constitutional interpretation rightly respects the independence of institutions for a free society, particularly as applied to the clergy housing allowance.  Such deference further implicates the interplay between tax subsidy theory and religion. 

Salary Threshold Increase for Exempt Employees

The minimum federal salary threshold for white-collar employees may soon increase from $23,660 to $35,308.  The U.S. Department of Labor recently released a proposed rule increasing the long-standing amount, as one of the requirements for “exempt” employees under the Fair Labor Standards Act.  Consequently, nonprofit employers with modestly or low-paid executive directors and other dedicated leaders may need to revisit their compensation structures to ensure that key leaders remain as exempt employees, for purposes of overtime pay and related legal compliance. In case this news sounds familiar, it is.  The DOL previously tried to increase the salary threshold much more drastically, and this second attempt might just stick. 

Seventh Circuit: Clergy Housing Allowance Is Constitutional

Section 107(2) of the Tax Code allows ministers who rent or own their own homes to receive an annual housing allowance from their employing church—and not pay federal income taxes on the designated amounts. The provision was adopted by Congress in 1954 after clergy from a variety of faith traditions indicated there was unequal tax treatment for those who were not provided a parsonage from their employing house of worship. In 2017, a federal district judge in Wisconsin ruled in favor of the leaders of the Freedom From Religion Foundation (FFRF) who argued the housing allowance exclusively benefits ministers, violating the Establishment Clause of the First Amendment. On Friday afternoon, the US Court of Appeals for the Seventh Circuit in Chicago reversed this decision.