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Exemption from Social Security (self-employment) taxes

January 13, 2019
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If ministers meet several requirements, they may exempt themselves from self-employment taxes concerning their ministerial earnings.  Among other things, the exemption application (Form 4361) must be submitted to the IRS within a limited time period.  The deadline is the due date of the federal tax return for the second year in which a minister has net earnings from self-employment of $400 or more, any part of which comes from ministerial services.  Further, the exemption is available only to ministers who are opposed on the basis of religious considerations to the acceptance of benefits under the Social Security program (or any other public insurance system that provides retirement or medical benefits).  As a result, a minister who files the exemption application may still purchase life insurance or participate in retirement programs administered by nongovernmental institutions (such as a life insurance company).

A minister's opposition must be to accepting benefits under Social Security (or any other public insurance program).  Economic, or any other nonreligious considerations, are not a valid basis for the exemption, nor is opposition to paying the self-employment tax.

The exemption is only valid when the IRS approves it.  Few ministers qualify for the exemption.  Many younger ministers opt out of Social Security without realizing that they do not qualify for the exemption.  A decision to opt out of Social Security is irrevocable.  Congress did provide ministers with a brief "window" of time to revoke an exemption by filing Form 2031 with the IRS.  This opportunity expired in 2002 and had not been renewed.

An exemption from self-employment taxes applies only to ministerial services.  Ministers who have exempted themselves from self-employment taxes must pay Social Security taxes on any non-ministerial compensation they receive.  Also, they remain eligible for Social Security benefits based on their non-ministerial employment assuming that they have worked enough quarters.  Generally, 40 quarters are required.  Also, ministers who exempt themselves from self-employment taxes may qualify for Social Security benefits (including retirement and Medicare) on the basis of their spouse's coverage, if the spouse had enough credits.  However, the amount of these benefits will be reduced by the so-called "windfall elimination provision."  Contact a Social Security Administration office for details.