Do ministers have to pay Social Security taxes?
Ministers for tax purposes must pay SECA taxes on their ministerial earnings unless they have properly followed IRS rules to opt out of Social Security, something few ministers qualify to do. If ministers have opted out of Social Security for their ministerial income, they must pay Social Security taxes on any income earned from secular employment.
Why do most ministers have a “dual tax status"?
Most ministers are employees for federal income tax purposes. But they are always considered self-employed for Social Security purposes. Unlike other taxpayers who are employees for federal income tax purposes, ministers must pay SECA taxes on their ministerial income.
What’s the difference between FICA and SECA?
Social Security taxes or contributions are collected under the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA). Many people refer to contributions to Social Security as either FICA or SECA taxes. Most employers and employees split the cost of Social Security contributions, often called FICA taxes. But self-employed taxpayers pay the full amount themselves and often call these SECA taxes.
Payment of Social Security taxes can be very confusing to churches and ministers because ministers are treated differently than other taxpayers. Unlike other taxpayers, ministers often have a dual tax status. They are employees for income tax purposes but for their ministerial earnings, they are always considered self-employed for Social Security. Unlike other taxpayers who are employees for income tax purposes, ministers must pay Social Security at the SECA tax rate. Their church employers don’t split the cost of Social Security contributions with them as they do for employees who aren’t ministers.
Can a church pay FICA for a minister to save the minister money?
No. A church cannot pay FICA for someone who is a minister for tax purposes. By law, ministers are always treated as self-employed for Social Security purposes and therefore are subject to SECA taxes on their ministerial earnings. Churches that pay FICA for their ministers are not doing them a favor — they are violating the law. When churches mistakenly pay FICA for ministers, they can cause errors in Social Security Administration records that may affect future benefits.
Can churches give ministers a Social Security “allowance” or “offset”?
Churches can give ministers a Social Security “allowance” or “offset” to help the minister pay SECA taxes. But a Social Security allowance or offset is extra income. The minister will have to report the allowance as income for federal income tax purposes and as income for SECA tax purposes.
Does a minister have to pay Social Security taxes on a church-designated housing allowance?
Yes. Although a housing allowance is excluded from income for federal income tax purposes, a minister must pay SECA taxes on a housing allowance until the minister retires. Another section of this brochure includes more information about the housing allowance.
Can a minister “opt out” of Social Security?
Few ministers can opt out of Social Security by meeting the strict IRS guidelines required for filing IRS Form 4361, Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners.
Three copies of this form must be filed by the due date of the minister’s tax return for the second year in which the minister had net earnings from self-employment of at least $400, any part of which came from ministerial income. If the form isn’t filed by that date, it is too late to opt out. The IRS must approve the application. Many ministers do not understand the strict rules for opting out of Social Security. They may not even read the requirements for filing Form 4361 before signing it. Ministers cannot opt out of Social Security because they think it’s a bad investment. When filing Form 4361, a minister makes some representations under penalty of perjury. A minister must certify opposition on the basis of religious principles to acceptance of public insurance. That includes payments for death, disability, retirement or medical care. Ministers must certify that they have informed their ordaining body of their opposition to accepting public insurance benefits on the basis of religious principles. Few ministers will be able to meet these requirements.
Even for those ministers who meet all these requirements, careful consideration must be given before opting out of Social Security. Once the decision to opt out is made, it is irrevocable.
Pastors who choose to opt out of Social Security also lose access to other important benefits, including potential disability payments for themselves and payments to their surviving spouse or dependents in the event of their death. They will also be denied Medicare coverage when they reach age 65, forcing them to provide the entire cost of their health care.
Do churches have to pay FICA for their non-ministerial employees?
Churches must pay their share and withhold the employee’s share of FICA for non-ministerial employees except in rare cases where a church has exempted itself from making these payments. Churches cannot classify non-ministerial employees as self-employed to avoid paying FICA.
Why are some churches exempt from paying FICA for their non-ministerial employees?
Few churches qualify to be exempt from paying FICA for their non-ministerial employees. Churches have one chance to exempt themselves from their obligation to pay FICA on behalf of their non-ministerial employees. They may file IRS Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption from Employer Social Security and Medicare Taxes. Churches filing this form must certify that they are opposed for religious reasons to the payment of Social Security taxes, something few churches can do. The deadline for filing Form 8274 relates to the date on which the church must file its first Form 941 on which it reports its employer share of FICA taxes.
When churches file Form 8274, they shift the burden of Social Security taxes to their employees, including non-ministerial employees. That means all their employees must pay SECA taxes as if they were self-employed. Churches that are exempt from paying FICA should be sure that applicants, new hires and current employees understand their obligations to pay SECA taxes.
How can taxpayers verify the accuracy of Social Security Administration records?
The Social Security Administration (SSA) automatically sends annual statements to workers and former workers who are 25 and older. Taxpayers can also request statements at other times by completing Form SSA-7004, Request for Social Security Statement, available on the SSA’s Web site at www.ssa.gov or by calling the SSA at 1-800-772-1213. All taxpayers should review their statements carefully. Any errors can be reported and corrected more easily the sooner they are found. For more information about annual statements and other Social Security issues, see the Social Security Administration’s Web site at www.ssa.gov.