Tag Archives Form 4361

We recently went over Form 4361, the IRS document used by pastors to receive an exemption from self-employment taxes. If you’re not familiar with it, you should go back and read about it here.

One thing we didn’t discuss in that article, though, was the timing. That’s because I didn’t want to overwhelm you with too much information. So, today we are discussing the timing involved and I will give you multiple examples to make things as clear as possible. It is important that you understand when Form 4361 can be filed because once your window of opportunity is gone, it is gone forever.

Is There A Time Limit For Pastors To File Form 4361 To Opt Out Of Social Security?

Specific dates are requested on the form because you only have a small window of time in which you are allowed to opt out of Social Security. Form 4361 must be filed by the due date, including extensions, of the second tax year in which you have $400 or more of net earnings from self-employment, any of which came from ministerial services.

That’s kind of long, so let’s break it down in reverse:

Earnings From Ministerial Services

The clock starts ticking when you have earnings from ministerial services. The IRS defines ministerial services as the services you perform in the exercise of your ministry. Usually, that would be wages earned or offerings received as a pastor. However, if you perform a wedding and the father of the bride gives you a $50 bill, that also counts as earnings from ministerial services. Basically, any money given to you because of some pastoral thing you did counts.

$400 Of Net Earnings From Self-Employment

You need to have at least $400 of net earnings from self-employment for the tax year in question to count towards the time limit. It is important to note that you don’t have to have $400 of ministerial income. Other non-ministerial self-employment income counts towards the $400. Even if you only earn the $50 for performing the wedding, if you earned at least $350 in your secular side gig, it counts towards your two years.

Second Tax Year

The deadline to file Form 4361 is based on two tax years. Tax years are calendar years and for this situation, they do not have to be consecutive. So, if you earn at least $400 of pastoral income one year and none the next, the deadline to request an exemption will not be triggered until the next year that you have sufficient ministerial income.

Due Date, Including Extensions

Finally, the due date for your Form 4361 is the due date for your tax return, including extensions. Tax returns are usually due on April 15 of the following year. Sometimes the date gets pushed back a day or two if the 15th falls on a weekend or holiday. In addition, everyone is eligible to file for a 6-month extension to file their return, which pushes the date to October 15.

Let’s take a look at how this might look in real life.

Examples Of How It Applies In Different Situations

Let’s look at an example. You get licensed and start a regular pastoral job in 2021 which pays you $50,000 a year. That means that your first tax year is 2021 and your second tax year is 2022, so you have to file Form 4361 by the due date for your 2022 tax return. That was April 18, 2023, but you could file an extension until October 16, 2023. So, you need to submit your Form 4361 by October 16, 2023.

Here’s another example: You get ordained in 2020 and work part-time, earning $10,000. Then, you take two years off and earn no ministerial income. In 2023 you do a few weddings and earn $500. Your deadline for filing Form 4361 will be the due date for your 2023 return. Even though you were ordained in 2020, the following two years, 2021 and 2022, don’t count towards the time limit because you had no pastoral income during those two years.  

One final example for the entrepreneurs out there: You have a small side business that generates $5,000 a year. You are ordained in December 2022 and earn $80 as a pastor that year. The next year, 2023, you work full-time as a pastor and earn $60,000. Your Form 4361 is due by the due date for your 2023 tax return. Even though your ministerial income was below $400 in 2022, your other self-employment exceeded the limit so that year counts.

It is vital that you understand the timing required for filing Form 4361. If you don’t file by the deadline, you forever lose the opportunity to opt out. There are no second chances here.

If you’re new to the ministry, you may have heard about Form 4361 from someone. Likely another pastor has mentioned it and told you that it will save you a lot of money. What is this mysterious money-saving piece of paper?

What Is Form 4361?

Form 4361 is an IRS document that is used by ministers to opt out of public insurance programs. You can view the form itself here. Its official name is Application for Exemption From Self-Employment Tax for Use By Ministers, Members of Religious Orders and Christian Science Practitioners, which is why most people just refer to it as Form 4361.

The title references being exempt from self-employment tax because that is what is used to fund the public insurance programs Social Security and Medicare. An exemption means you don’t have to pay the taxes but you also don’t get to benefit from the programs (based on your exempt ministerial income).

The form includes your personal information, contact information, and also the information for the church or body that ordained, licensed, or commissioned you. You also have to give information regarding the date you were ordained, licensed, or commissioned, and when you have received $400 or more in self-employment income, at least some of it as compensation for ministerial services. That is because you have a limited time in which you are eligible to file the form and claim an exemption.

The Opportunity To Opt Out Of Self-Employment Taxes

As already mentioned, self-employment taxes are the 15.3% that ministers have to pay to fund Social Security and Medicare (even if you’re an employee of a church). Social Security is the safety net program that the US government developed in response to the crisis of the Great Depression. It has evolved over the years and now provides retirement benefits, survivor benefits, and disability benefits. Medicare is the program that provides healthcare for Americans over age 65.

Unlike most everyone else, pastors have the option to opt out of participation in these programs, and therefore, their taxes. Don’t you feel special?

Not all pastors can opt out, though. You can only opt out if you can sincerely say, “I am conscientiously opposed to, or because of my religious principles I am opposed to, the acceptance (for services I perform as a minister, member of a religious order not under a vow of poverty, or Christian Science practitioner) of any public insurance that makes payments in the event of death, disability, old age, or retirement; or that makes payments toward the cost of, or provides services for, medical care. (Public insurance includes insurance systems established by the Social Security Act.)”

Why Would A Minister Opt Out?

It is illegal to opt out for economic reasons. The IRS makes that very clear. A legal exemption is based on one of two things:

1. Conscientious opposition to the acceptance of public insurance
2. Religious principles that oppose the acceptance of public insurance
   

So, it has to be either your conscience or your religious principles that drive the decision. The decision itself is about public insurance, which encompasses Social Security and Medicare.

I know a lot of pastors who opt out do so on the basis of the principle of stewardship. Everything we have is God’s and we are instructed to manage it wisely. Giving it to the government to mismanage is not good stewardship.

The Bible says that “a good person leaves an inheritance for their children’s children.” (Proverbs 13:22, NIV) Because of this, some pastors feel that it is wrong to prepare for the future by putting money into a system that won’t leave an inheritance for your children when you can easily save in a way that does.

For others, they equate accepting public insurance as relying on the government for provision instead of God. Dependence on the government violates their conscience and religious principles so they have grounds to request an exemption.

Warnings For Ministers Who Opt Out Of Social Security

Whether or not you choose to opt out is a personal decision that you need to pray and think deeply about. You will find some very strong opinions on the matter online, but I’m not here to tell you what decision to make. I do need to warn you, though, of the consequences of your decision.

If you choose to opt out of Social Security, you need to make up for the benefits the program provides on your own. You need to provide your own retirement savings, life insurance, and disability insurance. You can read all about how to do that here.

Some other articles that you might find useful are:

Opting Out Of Social Security: A Step By Step Guide

What You Need To Know About Social Security Even If You’ve Opted Out

Can You Still Receive Social Security Benefits Even After Opting Out?

How Medicare Works For Pastors Who Have Opted Out Of Social Security

Can Pastors Opt Back Into Social Security?