Can [should] the minister file IRS Form 4361 and exempt from self employment Social Security taxes [SECA] ? Much counsel has been offered on this subject, but we offer an additional perspective on how to view, and make a decision on this important issue.
It is possible for a Minister of the Gospel, by filing an IRS Form 4361 in a timely manner, to be exempted from participating in the Social Security system in-so-far his ministerial income is concerned. There are, however, several serious aspects to be aware of, and considered regarding this decision. This is a highly personal decision, and it is the ministers decision alone to make. In this article, we will attempt to give you the facts, as well as our personal opinion. This decision is solely in regards to “Ministerial Income.” Any income derived from secular employment, continues to be subject to the Social Security tax.
NOTE Filing in a “Timely manner” is discussed under “Steps To File” #2 at the end of this article.
This decision is not to be based on your economic opinion (eg: “I can surely do better with my money elsewhere“). Rather, you must be conscientiously opposed to receiving monies [retirement / Social Security], and Medicare at retirement age from the government. Over the years, we have met several Ministers who are at the end of their “Productive/earning years,” who had elected to “exempt” from the system and now, because they failed to provide for their retirement years, they have nowhere to live, and nothing to live on.
Realize too, that in the event of serious injury, or death, there will be no funds available to you or your spouse to care for your children; and that is a serious consideration.
NOTE: If a Minister elects to exempt, it would be wisdom to procure life insurance [We suggest 'Term Life,' insurance] on himself, in the amount equal to, but certainly not less than, at least ten years of his normal income to provide for his family. He should also seek counsel regarding investment, estate planning, and income replacement insurance.
As you weigh the merits of filing for exemption, be aware that the Satanic ‘priest’ of Wicca; the Muslim Imam; and the Jewish Rabbi can do this as well. Do not feel like you should have to hide the fact that you chose to do so.
IS IT POSSIBLE TO HAVE A “CLEAR CONSCIENCE” and choose to exempt from Social Security? The author’s viewpoint: I have observed the rapid, and ever increasing, encroachment of government into the personal affairs of it’s citizens over many years. In a Ministers conference in 1995 I said, that it would not be too long before the preaching against the sin of homosexuality will be a prosecutable offense. Today, if done in certain states [eg California], it is a ‘hate crime.’ More about that at the end of this article.
Having said that I, and many others have found it possible to file for exemption with a clear conscience, and have taken responsible steps to provide for our families in the event of personal economic disaster. See the following letter, written by Ward Correll, an E. A.
“Whereas it is true that if a minister has made the election on solely an economic basis, that the election was incorrectly made. I do believe however that ‘grounds’ for a correct choice do exist. If you have followed the increase of litigation over the last few decades, you are aware of the warfare that is occurring between the church and ‘governmental agencies.’ One point that has become clear, is that if you accept financial aid from the government, you also accept their controls and guidelines. This is where we can make a conscience choice. We can say, ‘No… we do not want any strings attached to our ministry. We do not want at any time some one to tell us what we can or cannot preach.’ To say that the government would never use such a point to leverage their agenda is simplistic. We can object to receiving money from the government. To file form 4361 does not mean that you would be disqualified from receiving social security from other employment, where the government gave no such option.”
Edward L. Correll, Enrolled Agent
Maywood Park, OR
QUALIFICATIONS FOR A MINISTER TO EXEMPT FROM SECA
He must first determine that he is in fact eligible to consider exemption. Consider the following five factors:
- Is he Ordained, Commissioned or Licensed, having authority to perform the Sacraments (To Marry and Bury)?
- Does he (in fact) administer the Sacraments?
- Does he conduct “Religious” worship? (preparation and ministering the Word of God).
- Does he have management responsibilities in the Church or Denomination?
- Is he considered to be a Religious Leader by the Church or the parent Denomination?
Must the minister actually do all of these things? The IRS has insisted that all five points must be met. The tax court, however, has said that the minister must minimally meet the first, and then at least two of the remaining four factors. There is certainly great disagreement between them.
MOST FREQUENTLY ASKED QUESTIONS:
Q – Does the Minister lose the credits, and dollars that he has paid into his account in the past?
A – NO! The exemption is only applicable to ministerial income, it does not affect what he has paid into the system in prior years.
Q – Can he retrieve the Self Employment taxes already paid on Ministerial income during the two year window?
A – YES, by timely filing form 1040X, he can retrieve those dollars. He should do so quickly, as the allowed time frame is quite short.
Q – If the Minister continues to earn moneys outside of the ministry, is the secular income taxable?
A – YES, and his credits from that income, will continue to accumulate, while his ministerial income would be untaxed.
Q – If the two year “window” is past can a Minister be Ordained again, and then file the 4361 Form?
A – Until recently, the answer was NO. They have always said it is the date of the first Ordination (Commissioning or Licensing) that was considered. However, if it is a Re-ordination, and the Minister has had a change of heart regarding his conviction of exemption, he now can do so. There is, in effect, a new ‘two year window.’ For more information on this subject, give us a call.
Q – Can I, in good conscience, file the Form 4361, considering the conditions set forth in #1?
A – This is the most important question of all. Too often, the decision to file has been made on the basis of an economic consideration, and that is not an allowable basis. The only basis being “conscientiously opposed to the acceptance of any public insurance funds ……”
Read the form, pray, and consider the above, including the letter by Rev. Ward Correll, E. A
THE “STEPS” OF FILING FOR EXEMPTION FROM SECA
- The Minister must read and carefully consider the provisions for exemption as presented in section 7 of the IRS Form 4361. Can he agree that he is “conscientiously opposed to the acceptance of any public insurance funds?” Not opposed to paying, but receiving financial assistance. If the minister signs this form, he is saying that he is opposed to financial aid of any sort from the Government for himself, his wife and his children in the event of an early death, or if he is incapacitated. If so, the minister can sign and file IRS Form 4361.
- He must file IRS Form 4361 in a timely fashion. The end of the “window of opportunity,” is when the minister has filed his tax return after the second year (need not be concurrent) of self employment, having earnings of $400.00 or more, with any part of it earned from ministerial activities. * He could be Ordained for 20 years, and then begin earning income from the Ministry – it is at that point the two year “Window” begins.
- He must write a letter to his ordaining organization, informing them of his decision and election to file IRS Form 4361. He would then mail, 1. A signed Form 4361, with 2. A copy of the aforementioned letter, and 3. The legal name, address, and FEIN, [employer identification number] of the church or denomination that ordained, commissioned, or licensed him; and 4. A copy of the church’s “Exemption Ruling” letter [if they have a letter], to the IRS,.. *
- The IRS will send a letter of inquiry to the Minister, to ask if “He truly understands the provision of exemption.” You will need to respond to this letter.
* When the Minister files the IRS Form 4361, he is asked to attach a copy of his ordaining organization’s “Exemption Ruling Letter,” to his application. If the organization does not have such a letter, (And they arenot required to have one, see Chapter 3 – 5, of our Church Administration ‘How To’ Manual for more information), the applicant may have to file additional Forms, to prove that the ordaining organization is indeed a legitimate, 501 (c)(3) Church. To learn more about this, see the article : What is 501(c)(3)?
- It would be wise to mail the above Packet to the IRS “Certified Mail, Return Receipt Requested.” Create a correspondence file regarding your application. If they never respond, and in subsequent years you were audited, your well maintained file, will win your audit case.
- The form is normally returned within 6 to 18 months, with a signature and date of approval on the Form 4361 you send in. Upon receipt of the approved Form, the Minister should make several copies, and keep them in various locations. Should he ever be audited, he must be able to produce the Form as proof that he did elect to exempt.
POINT – In filing Form 4361, you are NOT asking their permission to exempt, rather you are informing them of your choice.
REGARDING “OPTING OUT” - 2 PERSONAL COMMENTS:
- Some would say, “How can you in all honesty say you are opposed?” To that I respond: “The further this nation goes, as does Europe – where Christianity is actually being legislated against, the more I think we will shortly see the day when we will be denied our pittance of “Social Security” unless we preach a state mandated gospel. Already in California, effective November of 2004 when SB 1234 legislation was passed, it is now possible to be sued and held liable in the Civil Court by anyone in the audience who “Perceives/believes” he is being preached against [as regards to his/her choice of lifestyle eg: homosexuality, transgender etc. etc.]. The author of this manual has chosen to “Opt Out” of the social security system, and choose to “Look to his God for supply, shelter and sustenance, for himself and his family, as opposed to counting on the state – and has never looked back.”
Question: How long will it be before “Big Brother” government will announce something like: “Anyone persisting in speaking out against homosexuality, or against cohabiting couples having sex outside the boundaries of marriage, we will deem you to be ineligible to receive either your Social Security retirement or the benefits of Medicare?”
- We challenge you – DO NOT EAT YOUR “SEED.” Far too many ministers have opted out over the years, then suddenly – they are 65 years old and have not put anything aside in preparation for retirement. To be eligible for Social Security and/or Medicare at age 65, [And this is an increasingly older threshold], you must have worked and contributed to the system for 10 years [40 quarters].
PLEASE INVEST those funds [the 15.3% of income that you would have been required to pay into the system] in some tangible, thoughtful way. Hopefully you will have purchased your home, made extra payments on the mortgage, bought some Term Life Insurance, and have faithfully put funds away in anticipation of your “retirement” years. If nothing else, buy some valuable coins and bury them in the cabbage patch for goodness sake – BUT PLEASE DO SOMETHING with the money – Do not eat your seed! Be responsible.
To order any IRS Form – call 1-800/tax form (1-800-829-3676). They will mail any Form to you.
To download any Tax Form off the web, go to www.irs.gov. You can order any Form by number.
If this discourse is of interest to you, please see Chapter 10 in “The Church Administration ‘How To’ Manual”
for more specific information. There are Worksheets and Forms at the end of chapter ten, that will enable you to maximize Housing Allowance, and minimize personal income taxes. A Disc is included with the purchase of this manual, with the Worksheets and Forms. This Manual, endorsed by three CPA’s, an EA and two attorneys, was updated again in January, 2011, for the 12th time, since its original publication in 1991.
The above information is provided as a service to the Body of Christ by ADMINISTRATIVE ASSISTANCE.
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