Taxation of Clergy

The Issue

The question is whether the honorarium a pastor receives from a church is taxable income, and whether it is legitimate for the state to examine church finances.

Arguments in Favor of Taxation

• The principle of tax equity, under which every citizen pays taxes according to income.
• "Render therefore unto Caesar the things which are Caesar's" (Matthew 22:21), along with the exhortation to pay taxes: "Render therefore to all their dues: tribute to whom tribute is due" (Romans 13:7).
• Paying taxes makes church finances transparent and earns the trust of society.
• Reporting income allows low-income ministers to access welfare programs such as the earned income tax credit.

Even before the law took effect, some ministers and churches had voluntarily paid earned income tax.

Arguments Against and Concerns

• Ministry is a calling, not employment, and an honorarium is not a wage.
• Taxation imposes a second tax on offerings that church members have already given from after-tax income.
• Tax audits could allow the state to interfere in the church, violating the separation of church and state.
• Most ministers have low incomes, so the actual tax revenue would be small.

The System as Implemented

A 2015 amendment to the Income Tax Act created a category of "religious worker income," which took effect in January 2018 after a two-year grace period. Religious workers may choose to report their income either as religious worker income (classified as miscellaneous income) or as earned income. Expenses for religious activities (religious activity expenses) are excluded from taxation, and the scope of tax audits is limited to the books relating to the individual religious worker's income. For this reason, some criticize the system as preferential treatment compared with ordinary wage earners, while others regard it as an adjustment that takes into account the distinctive nature of the church.