Licensed and ordained pastors and ministers receive special treatment by the Internal Revenue Service. One privilege they have is the opportunity to exempt themselves from our nation’s Social Security system. This is a step-by-step guide explaining exactly how to opt out of Social Security.
The US tax code gives some pastors the right to opt out of self-employment taxes, or Social Security. Here is how you do it:
Step 1: Qualify
Not just anyone can opt out of Social Security. There are certain criteria that must be met in order to do so:
- You must be ordained, commissioned, or licensed by a church.
- Your church must be a tax-exempt religious organization.
- You must oppose receiving public insurance because of your religious principles or be conscientiously opposed to it.
Step 2: File IRS Form 4361
Form 4361 is a simple, one-page form that includes your basic information, your church’s information and a statement stating your opposition that you must sign. You must file the form by the due date for the tax return for the second year in which you begin to receive ministerial income of $400 or more. For example, if you get licensed in 2015 and earn $10,000 as a pastor that year, you must file the form by April 15, 2017 (or October 15, 2017, if you request an extension).
Step 3: Inform Your Church
You must inform the church that licensed, ordained, or commissioned you that you have a religious or conscientious opposition to the acceptance of public insurance.
Step 4: Verify Your Grounds For Exemption
Once the IRS receives your Form 4361, they will mail you a statement that describes the grounds for receiving an exemption under section 1402(e) of the Internal Revenue Code. The statement must be signed, verifying that you have read it and seek exemption on the grounds listed on the statement. You must mail it back to the IRS within 90 days of receiving it in order to be approved. If your exemption is approved, you will receive a copy of your Form 4361 marked “approved” for your permanent records.
Make sure to keep your approved Form 4361 in a very safe place, like a safety deposit box or fireproof lock box, in case you are ever audited. My church keeps all of the pastors’ forms for them in the church’s safe.
Once you opt out of self-employment taxes you can’t just take the money and run. Social Security provides some essential safety nets, and once you’ve opted out it’s up to you to make sure you have them in place for yourself. Click here to read about what you need to do to make sure you’ve got your back covered without Social Security.