Church & Clergy Tax Guide

Introduction

The Social Security Act provides a variety of benefits that are designed to assist aged and disabled persons and their dependents. The four major benefits provided under the Social Security system are

These important benefits are financed primarily through two separate tax systems. Under the Federal Insurance Contributions Act (FICA), a tax is levied against employers and employees, representing a percentage of an employee’s wages. Under the Self-Employment Contributions Act (SECA), a tax is levied against the net earnings of self-employed persons. FICA taxes are withheld by an employer from an employee’s wages and paid to the government, along with the employer’s share of the FICA tax, according to the payroll tax procedures summarized later in this chapter and in Chapter 11. Self-employment taxes are paid entirely by the self-employed worker and ordinarily are paid to the government through the estimated tax procedure (Form 1040-ES).

For Social Security, a duly ordained, commissioned, or licensed minister is treated as self-employed with respect to services performed in the exercise of ministry (except for some chaplains). This is true even if a minister is an employee for income tax purposes. As a result, a minister reports and pays Social Security taxes as a self-employed person (and not as an employee) with respect to services performed in the exercise of ministry. IRC 3121(b)(8)(A).

The treatment of ministers as self-employed for Social Security but as employees for income taxes has generated much confusion. In explaining the reason for treating ministers as self-employed for Social Security purposes, the Tax Court has observed: “Congress chose not to place the onus of participation in the old-age and survivors insurance program upon the churches, but to permit ministers to be covered on an individual election basis, as self-employed, whether, in fact, they were employees or actually self-employed.” Silvey v. Commissioner, 35 T.C.M. 1812 (1976).

In other words, if ministers were treated as employees for Social Security, their employing churches would be required to pay the employer’s share of the Social Security and Medicare tax, and this apparently was viewed as inappropriate. This justification ceased to be valid in 1984, when Social Security coverage was extended to church employees.

Until 1968, services performed by a duly ordained, commissioned, or licensed minister of a church in the exercise of ministry were exempt from Social Security taxes. A minister could voluntarily elect to be covered under the Social Security program by filing a timely Form 2031 with the IRS.

Since January 1, 1968, ministers have been automatically covered under Social Security but may exempt themselves with respect to compensation earned in the performance of ministerial services if they meet the following conditions.

Condition 1—minister status

The minister must be an ordained, commissioned, or licensed minister of a church. Licensed ministers of a church or denomination that both licenses and ordains ministers are eligible for the exemption only if they perform substantially all the religious functions of an ordained minister under the tenets and practices of their church or denomination. Revenue Ruling 78-301. See Chapter 3 for a complete explanation of what persons qualify as an ordained, commissioned, or licensed minister.

Condition 2—tax-exempt religious organization

The minister must have been ordained, commissioned, or licensed by a tax-exempt church or convention or association of churches. Revenue Ruling 80-59. Form 4361 (the exemption application for ministers) specifies: “You must establish that the body that ordained, commissioned, or licensed you . . . ​is exempt from federal income tax . . . ​as a religious organization described in section 501(c)(3) of the Internal Revenue Code. You must also establish that the body is a church (or convention or association of churches)” (emphasis added).

Condition 3—filing a timely Form 4361

The minister must file a timely exemption application (Form 4361) in triplicate with the IRS. A minister certifies on Form 4361, “I am conscientiously opposed to, or because of my religious principles I am opposed to, the acceptance (for services I performed as a minister . . .) 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.” The form states that “public insurance includes insurance systems established by the Social Security Act.” Three factors are important to note:

Section 1402(e) of the tax code and Form 4361 both specify that the exemption is available to a minister who is “conscientiously opposed to, or because of his religious principles is opposed to, the acceptance (with respect to services performed by him as such minister) 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.” The regulations interpreting this language specify that

ministers . . . ​requesting exemption from Social Security coverage must meet either of two alternative tests:

(1) a religious principles test which refers to the institutional principles and discipline of the particular religious denomination to which he belongs, or

(2) a conscientious opposition test which refers to the opposition because of religious considerations of individual ministers . . . ​(rather than opposition based upon the general conscience of any such individual or individuals). Treas. Reg. 1.1402(e)-2 A(a)(2).

Note that under both the “religious principles” and “conscientious opposition” tests, a minister must have religion-based opposition to accepting Social Security benefits. The income tax regulations reject the view that ministers can be eligible for exemption from Social Security coverage based on conscientious opposition alone. The conscientious opposition must be rooted in religious belief. Section 1402(e) of the tax code specifically delegates to the Treasury Department the authority to adopt regulations prescribing the “form and manner” of filing exemption applications. Therefore, though the regulations’ rejection of nonreligious conscientious opposition to Social Security benefits as a ground for exemption seems to contradict the plain meaning of the tax code, it is unlikely that a court would find the regulations to be invalid.

Clearly, economic or any other nonreligious considerations are not a valid basis for the exemption. Some ministers have been induced to exempt themselves from Social Security participation because of the recommendation of a financial consultant that they would be “better off financially.” In some cases, counselors have recommended an alternative investment returning a commission or premium to themselves. Fortunately, such tactics have become less common because of the verification requirement for exemption, discussed later in this section.

The applicant qualifies for the exemption if he or she is personally opposed to accepting Social Security benefits on the basis of religious principles, even though his or her ordaining, commissioning, or licensing body is not officially opposed to Social Security participation (i.e., such an applicant would satisfy the conscientious opposition test described above).

The exemption is available only if a minister is opposed based on religious considerations to the acceptance of public insurance benefits (including Social Security)—not opposition to payment of Social Security taxes. A minister may have religious opposition to payment of the tax, but this alone will not suffice. The individual must have religious opposition to accepting Social Security benefits based on retirement or disability. This is an extraordinary claim that few ministers will be able to make in good faith.

The applicant’s opposition must be to accepting benefits under the Social Security program (or any other public insurance system that provides retirement and other specified 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). T.A.M. 8741002.

The income tax regulations specify that the term public insurance refers to “governmental, as distinguished from private, insurance and does not include insurance carried with a commercial insurance carrier.” Treas. Reg. 1.1402(e)-2A(a)(2); Revenue Ruling 77-78. The regulation goes on to clarify that to qualify for the exemption, a minister “need not be opposed to the acceptance of all public insurance,” but he “must be opposed on religious grounds to the acceptance of any such payment which, in whole or in part, is based on, or measured by earnings from, services performed by him in his capacity as a minister” (emphasis added).

The deadline for filing Form 4361 is the due date, including extensions, 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 derives from the performance of services in the exercise of ministry. In most cases, this means the form is due by April 15 of the third year of ministry.

Example A federal appeals court ruled that ministers who opt out of Social Security by filing a timely Form 4361 will not be able to claim years later that they qualify for Social Security retirement benefits on the ground that their exemption application was filed after the deadline expired and should never have been approved by the IRS. The court noted that the minister “made a knowing waiver of his Social Security benefits in return for a tax exemption. . . . ​For over twenty years [he] did not pay self-employment tax and did not notify the IRS nor the Social Security Administration about the ‘mistake’ in granting his application. The government kept its part of the agreement, and the minister must keep his.” Yoder v. Barnhardt, 56 Fed. Appx. 728 (7th Cir. 2003).

EXAMPLE A pastor did not satisfy the requirements for exemption from self-employment taxes because he failed to file a timely exemption application (Form 4361) with the IRS. The Tax Court noted that this exemption “is not automatic; the taxpayer must apply and be approved.” Further, “merely filing that form does not invoke the exemption; the Form must be approved by the IRS.” The court concluded: “[The pastor] does not allege they complied with the statutory provisions which would allow them to take advantage of SECA’s tax exemption. There is no mention of obtaining the required approval for such an exemption or an assertion that they submitted IRS Form 4361.” The pastor simply summarily asserted that he “was not required to apply for, or obtain approval of, the exemption.” Arensmeyer v. United States, 2022 U.S. Claims LEXIS 1311 (Ct. Cl. 2022).

Condition 4—notifying the religious organization

Applicants for exemption must inform their “ordaining, commissioning, or licensing body” that they are opposed to Social Security coverage for services they perform in the exercise of ministry. IRC 1402(e)(1). By signing Form 4361, applicants verify that they have satisfied this requirement. Ministers who plan to apply for exemption from Social Security coverage must be sure to notify the church or denomination that ordained, commissioned, or licensed them regarding their opposition to Social Security coverage and presumably of their intention to file an exemption application. This notification must occur prior to the time the exemption application is filed.

Churches or religious denominations that ordain, commission, or license ministers should be aware that they must be informed by applicants for exemption from Social Security coverage that they are applying for exemption. This requirement apparently was designed to provide churches and denominations with an opportunity to counsel applicants regarding the desirability of seeking exemption. Further, knowledge that a particular minister has applied for exemption will assist the church or denomination in providing appropriate pension counseling to such a person. Churches and denominations should prepare standardized responses, setting forth in detail their response to a minister’s claim of exemption.

Ministers are free to obtain an exemption (if they otherwise qualify) even if their church or denomination is officially opposed to the exemption of ministers from Social Security coverage or has never taken a position one way or the other. Such churches and denominations should be sure to state, in detail, their reasons for urging an applicant to reconsider his or her decision to pursue exemption. At a minimum, a response should specify the various Social Security benefits that will be forfeited (i.e., retirement benefits, survivor benefits, disability benefits, and Medicare).

Some denominations have been sued for failing to adequately counsel younger ministers regarding the financial disadvantages that may be associated with an exemption from Social Security. Churches and denominations may wish to have applicants for exemption sign a form acknowledging that the church or denomination counseled against filing an exemption application and releasing the church or denomination from any liability that may arise out of financial hardships associated with exemption. Of course, these procedures will not be as critical if a church or denomination has no position regarding Social Security exemptions. Even in such cases, however, it may be prudent to point out the benefits that are being forfeited and the financial hardship that an exemption may create.

Condition 5—IRS verification

No application for exemption will be approved unless the IRS “has verified that the individual applying for the exemption is aware of the grounds on which the individual may receive an exemption . . . ​and that the individual seeks an exemption on such grounds.” IRC 1402(e)(2). This verification requirement was adopted to prevent the widespread practice of ministers exempting themselves from Social Security coverage solely because of financial considerations. The income tax regulations explain the verification procedure as follows:

Upon receipt of an application for exemption from self-employment taxes . . . ​the IRS will mail to the applicant a statement that describes the grounds on which an individual may receive an exemption under [the law]. The individual filing the application shall certify that he or she has read the statement and that he or she seeks exemption from self-employment taxes on the grounds listed in the statement. The certification shall be made by signing a copy of the statement under penalties of perjury and mailing the signed copy to the IRS Service Center from which the statement was issued not later than 90 days after the date on which the statement was mailed to the individual. If the signed copy of the statement is not mailed to the IRS Service Center within 90 days of the date on which the statement was mailed to the individual, that individual’s exemption will not be effective until the date that the signed copy of the statement is received at the Service Center. Treas. Reg. 1.1402(e)-5A.

In other words, the IRS satisfies the verification requirement by sending each applicant a statement reciting the grounds on which an exemption is available and having the applicant sign the statement, certifying under penalty of perjury that he or she is seeking exemption based on an available ground. The statement must then be returned to the IRS within 90 days from the date it was originally sent by the IRS. Ministers who fail to return the signed statement within 90 days will delay recognition of their exemption until the date that the signed statement is received by the IRS.

Condition 6—no disqualifying election

You cannot be exempt from self-employment tax if you made one of the following elections to be covered under Social Security. These elections are irrevocable.

Some common questions pertaining to the exemption from self-employment taxes are addressed here.

When is an exemption effective?

Filing a timely exemption application does not necessarily qualify a minister for exemption. The income tax regulations specify that “the filing of an application for exemption on Form 4361 by a minister . . . ​does not constitute an exemption from the tax on self-employment income. . . . ​The exemption is granted only if the application is approved by an appropriate internal revenue officer.” In practice, an exemption is effective only when an applicant receives back one of the three 4361 forms (it is filed in triplicate) from the IRS marked “approved.” Ministers should be careful not to lose an approved Form 4361. Treadway v. Commissioner, 47 T.C.M. 1375 (1984).

An approved exemption is effective for all tax years after 1967 in which a minister has $400 or more of net earnings from self-employment and any part of those earnings is for services as a member of the clergy.

What if I cannot prove that I submitted a Form 4361?

Some ministers claim to be exempt from self-employment taxes, but the IRS has no record of a Form 4361 ever having been filed or approved. Are such ministers exempt? Do they owe back taxes? As noted in the answer to the previous question, exemption from self-employment taxes generally is not effective until the IRS approves a minister’s Form 4361. This poses a potential problem when ministers are audited and cannot produce a copy of their approved Form 4361 (and the IRS has no record of receiving or approving such a form). The courts have addressed this issue in five cases. Each case is summarized below.

Eade v. United States, 792 F. Supp. 476 (W.D. Va. 1991)

A federal court in Virginia ruled that a minister was entitled to exemption from self-employment taxes even though the IRS had no record of ever having received his exemption application (Form 4361). The minister was able to persuade a jury that he qualified for exemption and that he filed a timely exemption application. The court acknowledged that the income tax regulations specify that a minister’s exemption is not effective until the IRS marks a copy of the exemption application “approved” and returns it to the minister. However, the court concluded that IRS approval of such applications is a perfunctory act involving no discretion. Accordingly, since the minister had done everything he was required to do in order to claim the exemption and was in fact qualified for it, he was entitled to the exemption despite the apparent mistake of the Post Office or the Internal Revenue Service.

The Eade case may resolve a dilemma for many ministers who have submitted a timely application for exemption from self-employment taxes (Form 4361) but who have never received a reply from the IRS. Many of these ministers have assumed that they are exempt. They become alarmed when they discover that the income tax regulations state that the exemption is effective only when the IRS stamps their application “approved” and returns it to them.

The Eade case gives hope to these ministers. They will not necessarily be liable for self-employment taxes (plus penalties and interest) for previous years. However, to achieve this result, they must (1) demonstrate that they were eligible for the exemption; (2) convince a jury that they mailed a timely Form 4361; and (3) persuade the court to apply the same reasoning as the Virginia federal district court (i.e., that IRS “approval” of an exemption is a perfunctory, administrative act that is not a requirement for exemption). As the court itself noted, not every minister will be able to persuade a jury that he or she mailed a timely Form 4361.

A few other points should be observed about the Eade case. First, the decision does not provide any relief to those ministers who would like to exempt themselves from self-employment taxes after the deadline has expired. Second, the decision does not liberalize the requirements for qualifying for exemption. To be eligible for the exemption from self-employment taxes, a minister must be opposed on the basis of religious considerations to the acceptance of Social Security benefits. This is an extraordinary claim that few ministers can satisfy. Nothing in the court’s decision changes this. Third, the case will be of no help to ministers who cannot recall whether they filed a Form 4361. Fourth, the court in no way was encouraging ministers to opt out of Social Security. Again, few ministers will be able to satisfy the extraordinary requirements for exempt status. This has not changed.

Abdallah v. Commissioner, T.C. Summary Opinion 2002-132

Pastor B graduated from seminary in 1976 and was ordained in 1977. After his ordination, Pastor B served as the senior pastor of a church. In March 1977 Pastor B completed and signed Form 4361 in the presence of witnesses and mailed it to the IRS. The IRS has no record that the Form 4361 was filed, and Pastor B did not keep a copy of the form he submitted. The IRS audited Pastor B and determined that he was not exempt from self-employment taxes. It relied on a provision in the income tax regulations specifying that an exemption is not effective until approved by the IRS. Pastor B appealed to the Tax Court. Both he and the IRS agreed that a Form 4361 filed in March 1977 would have been timely. The only issue was whether the form was actually filed.

The court concluded that Pastor B was exempt from self-employment taxes:

We found [Pastor B’s] evidence that he had filed for an exemption to be particularly credible. His testimony concerning the filing of the Form 4361 was straightforward and plausible. Further, his testimony was buttressed by the written statement of a witness who observed petitioner complete and sign the Form 4361 in 1977. With regards to whether the application was approved by [IRS], as required by the regulations . . . ​we believe that such approval must have been given. [Pastor B] consistently has not paid self-employment taxes on his ministerial earnings since 1977. . . . ​It seems highly peculiar that, if the approval had not been given, he would have filed for 21 years as being exempt without some dispute. Rather, it seems more likely that his file was misplaced at some point in time. Thus, we find that he prepared and filed the Form 4361 in 1977.

The court acknowledged that Pastor B could not produce a copy of the Form 4361 that he allegedly filed, but it concluded that neither the tax code nor the regulations require ministers “to retain such a copy.”

William and Cathy A. Bennett v. Commissioner, T.C. Memo. 2007-355 (2007)

In one case, a minister was commissioned and licensed by a church in 1996 and served as its senior pastor. He received net ministerial income of $400 or more for 1997 through 2002 (except for 2000). In 1998 he paid self-employment taxes on his ministerial income but did not do so for any of these other years based on his belief that he was exempt.

The IRS audited the minister’s 2002 tax return and determined that he incorrectly claimed to be exempt from self-employment taxes. Self-employment taxes, plus interest, were assessed. The minister claimed that he was exempt from self-employment taxes since (1) he filed a Form 4361 with the IRS in 1980 that the IRS approved, although he didn’t have a copy of the form or the IRS approval; and (2) he filed a new Form 4361 with his tax returns for 1997, 1999, 2000, and 2002.

The IRS claimed that it never received the minister’s 1980 exemption application and that the subsequent forms he submitted were all too late. The minister appealed his case to the United States Tax Court. The Tax Court agreed with the IRS that the minister failed to submit his Form 4361 on time.

The 1980 Form 4361. The court concluded that the following facts undermined the minister’s claim that he owed no self-employment taxes in 2002 because he filed a timely Form 4361 in 1980 that was approved by the IRS:

The minister claimed that his failure to pay employment taxes in some years proved that in 1980 he must have received an approved ministerial exemption. The court noted that “his failure to pay employment taxes in some years could be attributed to a number of reasons (e.g., unemployment).”

The other Forms 4361. The court noted that the minister had income of at least $400 for both 1997 and 1998 from the exercise of ministry, and therefore the due date for his Form 4361 was April 15, 1999 (the due date for his federal tax return for the second year that he had net self-employment income of at least $400, any part of which derived from ministerial services). The minister insisted that he filed timely Forms 4361 (or letters containing the same information) in 1997, 1999, 2000, and 2002, and therefore his ministerial income was exempt from self-employment taxes for 2002. The court disagreed. It addressed each of the minister’s submissions as follows:

The minister produced several additional copies of different Forms 4361 prepared and signed by him and dated prior to April 15, 1999, but he “produced no evidence that these Forms 4361 were ever properly addressed, stamped, mailed, and filed with the IRS prior to April 15, 1999.”

The court stressed that (1) the Form 4361 filing deadline “is mandatory and is to be complied with strictly” and that (2) ministers “bear the burden of proof to establish that a Form 4361 or letter was timely filed.”

Vigil v. Commissioner, T.C. Summary Opinion 2008-6 (2008)

In 1996, during an audit of his 1994 joint tax return, the taxpayer wrote a letter to the IRS stating that in 1987 he had filed a Form 4361 exemption application and that a copy of the approved Form 4361 had been returned to him. He requested that another copy of the approved application be sent to him and enclosed a copy of the signed (but unapproved) Form 4361 that he claimed he filed in 1987. The IRS received his request along with the copy of the unapproved Form 4361. It searched its document and computer files but did not find any record that the taxpayer had been approved for a ministerial exemption or any record that he had filed a request for a ministerial exemption before 1996. The IRS requested that the Social Security Administration search its records and learned that the SSA did not have any record of either the approval or the receipt of a Form 4361 from the taxpayer.

In 1997 the IRS informed the taxpayer of an adjustment to his 1994 federal income tax, together with a negligence penalty, resulting from nonpayment of self-employment taxes. However, a few months later, the IRS sent the taxpayer a letter stating that the 1994 examination resulted in no change to the taxes reported.

Several years later, the IRS audited the taxpayer’s 2001 tax return and determined that he had underpaid his taxes by $12,118, mostly due to a failure to pay self-employment taxes. Again the IRS asserted that it could find no evidence that the taxpayer was exempt. The taxpayer appealed to the Tax Court.

The court noted that the tax code provides specific requirements for a minister to obtain an exemption from self-employment tax: “A minister seeking the exemption must file an application stating that he is opposed, because of religious principles or conscientious beliefs, to the acceptance of certain types of public insurance, such as that provided by the Social Security Act, attributable to his services as a minister. This application must be filed within the specific time limits. . . . ​Once properly obtained, the exemption from self-employment tax is irrevocable and remains effective for all succeeding taxable years.”

The court noted that an application for exemption (Form 4361) must be filed “on or before the later of the following dates: (1) [t]he due date of the return (including any extensions) for the second taxable year for which the taxpayer has net earnings from self-employment of $400 or more, any part of which was derived from the performance of services as a minister, or (2) the due date of the return (including any extensions) for his second taxable year ending after 1967.” The court stressed that it had “consistently held that the time limitations are mandatory, and taxpayers must strictly comply with them.” In addition, ministers bear the burden of proving that they are eligible for the exemption and that they filed a timely Form 4361. The court observed:

The IRS’s “Ministerial Exemption Unit” had conducted a search to determine whether the taxpayer had previously filed a Form 4361 and whether it had been approved. A supervisor of this unit found the taxpayer’s 1996 letter asserting that he filed Form 4361 in 1987, requesting another copy of the approved Form 4361, and enclosing a copy of the signed but unapproved Form 4361. The supervisor also found the case history sheet that was completed in 1996 when the IRS received the taxpayer’s letter. The case history sheet documented the search at both the IRS and the SSA for any Form 4361 filed by the taxpayer and reflects that the IRS notified him in 1996 that neither the IRS nor the SSA found any record of a Form 4361 for him, either approved or denied. The supervisor queried the SSA again and received a certification, dated May 3, 2007, that the SSA had no record of the taxpayer submitting a Form 4361. Finally, she testified that the SSA retains such records for 75 years.

The taxpayer’s testimony regarding when he filed Form 4361 was vague and inconsistent; he was certain it was filed in the 1980s, but he thought it might have been a couple of years after he was licensed. He signed the Form 4361 on April 7, 1987. The form states that he was licensed in January 1979. His testimony was confusing on this issue; he stated that he was licensed around 1980 but could not say exactly when. He also testified that he worked part time as a minister in 1979 and full time starting in 1980. The Form 4361 states that the first 2 years in which he had net self-employment earnings in excess of $400, at least some of which came from services as a minister, were 1979 and 1980. We find that the taxpayer was licensed in 1979 and that his first 2 earning years as a minister were 1979 and 1980. We conclude that his Form 4361 was due on the due date of his tax return for 1980; i.e., April 15, 1981, with extensions. He signed the Form 4361 and gave it to their certified public accountant (CPA). However, he has not demonstrated that he submitted a Form 4361 to the IRS before his letter in May of 1996 or that an application for exemption was ever approved. Because a search of IRS and SSA records by the IRS for the taxpayer’s Form 4361 failed to discover the original form, and since he failed to carry his burden of proving that the form was filed, we find that he did not timely file a request for exemption as required by law.

The taxpayer claimed that his CPA showed the signed Form 4361 to the IRS agent examining his 1994 return and that this documentation ultimately resulted in the no-change letter from the IRS for 1994. He insisted that the decision by the IRS not to change his taxes for 1994 proved that it accepted his exemption for 1994 and established that the application form was on file at that time and, by implication, was approved. As a result, the IRS was barred from denying his exemption. The court disagreed: “It is well established that each tax year stands on its own. Furthermore, errors of law in prior years do not stop the IRS from correcting those errors in later years. In view of the apparent failure of the taxpayer to file Form 4361 timely, acquiescence by IRS agents in accepting his claim of exemption in 1994 was an error of law. Such a mistake does not prevent correction of the error as to 2001. [The tax code] imposes time limitations, and IRS agents have neither the authority nor the power to grant an exemption not complying with the statute.”

Corso v. Commissioner, T.C. Sum. Op. 2014-3 (2014)

A minister (the “petitioner”) has been an ordained member of the clergy since 1992. She began to derive income from her performance of services in her capacity as an ordained minister in 1993. The first two years after ordination in which the petitioner derived net self-employment earnings of $400 or more from ministerial services were 1993 and 1994.

The petitioner timely filed her 1994 Form 1040, U.S. Individual Income Tax Return, on October 16, 1995. She claimed that she submitted a Form 4361 with her 1994 tax return and that the form was approved by the IRS and returned to her. The petitioner’s copies of her 1993 through 1998 tax returns were destroyed in a basement flood. As a result, she does not have a copy of the Form 4361 that she claims she filed with her 1994 tax return. Further, the tax returns the petitioner filed for the years 1993 through 2002 have been destroyed by the IRS pursuant to normal procedures.

In reliance on the fact that her Form 4361 exemption application had been approved by the IRS in 1994, the petitioner had not paid self-employment taxes on any ministerial income since 1994. The petitioner’s tax returns for 2000 and 2002 were audited by the IRS, but in both cases, the IRS accepted the petitioner’s status as exempt from self-employment taxes.

However, in 2012 the IRS informed the petitioner that she owed self-employment taxes for 2007 and 2008 (the years under investigation), based, in part, on the fact that the IRS ministerial waivers unit’s file for the petitioner did not contain a Form 4361 that was filed in 1994. The petitioner appealed to the United States Tax Court.

The Tax Court began its opinion by noting that the “petitioner bears the burden of proving that her Form 4361 was properly filed and approved and that the IRS determination is erroneous.” The court noted that “the mere filing of a Form 4361 does not constitute an exemption. The exemption is granted only if the application is approved by an appropriate internal revenue officer.” Treas. Reg. 1.1402(e)-2A(c). The court continued:

The first two years after ordination in which petitioner derived net self-employment earnings of $400 or more from ministerial services were 1993 and 1994. As a result, in order for petitioner to be exempt from self-employment tax for the years at issue, she must have filed a Form 4361 no later than the due date of her 1994 Federal income tax return. Petitioner stated that she attached a completed Form 4361 to her 1994 tax return and that such form was approved by the IRS and returned to her in 1995. The IRS argues that petitioner did not prove she had filed a Form 4361 with her 1994 tax return and that the IRS has no record of an approved Form 4361 from that period. We must determine whether petitioner attached her Form 4361 with her timely filed 1994 tax return and whether the IRS approved such form.

The parties stipulated that petitioner’s copy of her 1994 Federal income tax return was destroyed in a flood along with copies of her 1993 and 1995 through 1998 tax returns. Petitioner stated that the Form 4361 approved by the IRS in 1995 was attached to the destroyed return. Petitioner argues that the examinations of her federal income tax return for the taxable years 2000 and 2002 in which the IRS determined she owed no self-employment tax is circumstantial evidence that at the time of the two examinations the IRS had evidence of petitioner’s approved Form 4361. . . .

For the taxable years 2000 and 2002 the IRS examined petitioner’s tax returns and agreed with petitioner that no self-employment tax was owed. The only issue relative to the exemption was whether petitioner had timely filed a Form 4361 that had been approved by the IRS. This creates an inference that on at least two occasions the IRS determined that petitioner had filed a Form 4361 with her 1994 tax return and that such form had been approved. The IRS determinations during the two examinations are consistent with petitioner’s assertion that the Form 4361 she filed with her 1994 tax return had been approved. Petitioner has consistently reported that she was exempt because she had filed Form 4361. Petitioner’s reporting of no self-employment tax for these taxable years is consistent with her position that the Form 4361 filed with her 1994 tax return was approved by the IRS. Over the course of multiple examinations petitioner has consistently stated that she filed a Form 4361 with her 1994 tax return and that such form had been approved. On two previous occasions the IRS apparently agreed. Based upon the evidence we find that, more likely than not, petitioner filed a Form 4361 with her 1994 federal income tax return and that such form was approved by the IRS. Accordingly, we hold that petitioner is not liable for self-employment tax for the years at issue.

Will I receive a refund of self-employment taxes I paid before filing Form 4361?

Ministers who file an exemption application close to the deadline will have paid self-employment taxes on their ministerial income for two years. IRS Publication 517 contains the following instructions for claiming a refund of these taxes:

If, after receiving an approved Form 4361, you find that you overpaid SE tax, you can file a claim for refund on Form 1040-X. Generally, for a refund, you must file Form 1040-X within 3 years from the date you filed the return or within 2 years from the date you paid the tax, whichever is later. A return you filed, or tax you paid, before the due date is considered to have been filed or paid on the due date.

If you file a claim after the 3-year period but within 2 years from the time you paid the tax, the credit or refund will not be more than the tax you paid within the 2 years immediately before you file the claim.

Can the period for filing an exemption application be extended or renewed?

As noted above, an exemption application must be submitted by the due date, including extensions, of the federal tax return for the second year in which a minister receives net earnings from self-employment of $400 or more, any portion of which comes from the exercise of ministry. Many ministers have asked, “Is there any way I can submit an exemption application after this deadline has expired?” Consider the following.

The general rule—no extension or renewal allowed

Several ministers have attempted to file exemption applications after the filing deadline expired. However, the courts have never permitted any exceptions to the filing deadline rules—except in one case discussed below.

To illustrate, several ministers who failed to file a timely exemption application have argued that their constitutional right to freely exercise their religion is violated if they are forced to pay Social Security taxes against their will. This contention has been consistently rejected by the courts. The United States Supreme Court has observed that “if we hold that ministers have a constitutional right to opt out of the Social Security system when participation conflicts with their religious beliefs, that same right should extend as well to persons with secular employment and to other taxes, since their right to freely exercise their religion is no less than that of ministers.” United States v. Lee, 455 U.S. 252 (1982).

Other ministers have argued that (1) they were unaware of the deadline; (2) they were certain (but could not prove) that they had filed a timely election; (3) they were given incorrect advice by IRS employees regarding the requirements for exemption; or (4) their opposition to participation in the Social Security program did not arise until after the deadline for filing an exemption application had passed. The courts have rejected all these arguments. See, e.g., Ballinger v. Commissioner, 728 F.2d 1287 (10th Cir. 1984); Olsen v. Commissioner, 709 F.2d 278 (4th Cir. 1983); Keaton v. Commissioner, T.C. Memo. 1993-365; Paschall v. Commissioner, 46 T.C.M. 1197 (1983); Hess v. Commissioner, 40 T.C.M. 415 (1980).

Change of faith accompanied by an untimely exemption application

The general rule applies, and the period for filing an exemption application will not be renewed. In 1984 a federal appeals court ruled that the deadline for filing an application for exemption from self-employment taxes is not renewed or extended simply because a minister undergoes a change of faith. Ballinger v. Commissioner, 728 F.2d 1287 (10th Cir. 1984). In the Ballinger case, a minister was ordained by a Baptist church in 1969 and served as a minister of that church from 1969 through 1972. He did not apply for an exemption from self-employment tax. He became a minister in another faith in 1973 and performed services as a minister of a church affiliated with his new faith in 1973, 1974, and 1975. He paid the appropriate self-employment tax on such earnings during each of these years. In 1978 the minister was formally ordained by his new church, and in the same year, he submitted an exemption application (Form 4361) to the IRS claiming that he followed his new church’s teachings in opposition to accepting public or private insurance benefits, such as Social Security benefits in the event of death, disability, or old age.

The IRS denied this application for exemption, and the Tax Court agreed. The Tax Court refused to interpret the time requirements for filing an exemption application as allowing an exemption after a second ordination. The minister appealed this decision to a federal appeals court, which agreed with the IRS and Tax Court. However, it insisted that it did not agree with the Tax Court’s sweeping conclusion that an exemption is never permissible in cases of second ordinations. The court observed:

The statute makes no distinction between a first ordination and subsequent ordinations. Not all churches or religions have a formally ordained ministry, whether because of the nature of their beliefs, the lack of a denominational structure or a variety of other reasons. Courts are not in a position to determine the merits of various churches nor an individual’s conversion from one church to another. Thus, we cannot hold that an individual who functions as a minister in a church which does not ordain, license or commission that individual in a traditional or legally formal manner is not entitled to the exemption. Nor can we hold that an individual who has a change of belief accompanied by a change to another faith is not entitled to the exemption. We interpret Congress’ language providing an exemption for any individual who is “a duly ordained, commissioned or licensed minister of a church” to mean that the triggering event is the assumption of the duties and functions of a minister.

Since the minister in this case began his duties with his new church in 1973, his deadline for filing an exemption application was April 15, 1975. It did not matter that he was not ordained until 1978, since the critical event according to this court is the date a person begins performing the duties of a minister.

Minister who remains in the same church but does not develop religious-based opposition to the acceptance of Social Security benefits until after the deadline has expired

The general rule applies here as well, and an exemption application will be denied. The federal appeals court in the Ballinger case (see above) observed:

The more difficult question is whether an individual, who has already assumed the duties of a minister, belatedly acquires a belief in opposition to the acceptance of public insurance and that change in belief is not accompanied by a change in faiths, is entitled to the exemption if he files within the statutory time frame after acquiring his new belief. We find that the statute does not provide for an exemption in that situation. The triggering event for measuring the statutory time period is the assumption of ministerial duties, combined with earning a particular amount of income. Thus, the statute does not provide for an exemption where a minister belatedly acquires a belief in opposition to public insurance apart from conversion to another faith. The [minister] did not file for the exemption within the applicable time frame.

Possible exception to the general rule—a second ordination in another faith accompanied by a timely exemption application

In 1994 a federal appeals court for the 10th circuit (Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming) ruled that the deadline for filing an exemption application had to be recomputed after a minister left the ministry for five years and was then reordained by another church. Hall v. Commissioner, 30 F.3d 1304 (10th Cir. 1994). Pastor Hall served as a Methodist minister in 1980 and 1981, and he received net earnings from self-employment in both years of at least $400 from the exercise of his ministry. As a result, the deadline for filing an application for exemption from self-employment taxes was April 15, 1982. During this time, however, Pastor Hall was not opposed to the acceptance of Social Security or other public insurance benefits and did not file for exemption. He left the ministry and worked as an engineer. Five years later, he was ordained as a minister by another denomination and immediately filed an application for exemption from self-employment taxes. He insisted that he developed an opposition to accepting Social Security benefits due to the influence of his new denomination.

The IRS denied Pastor Hall’s exemption application, concluding that the deadline was April 15, 1982. On appeal, the Tax Court agreed with the IRS and denied Pastor Hall’s exemption application. The court noted that the tax code does not make any provision for a second application period following a second ordination. Pastor Hall appealed, and a federal appeals court concluded that the deadline for filing an exemption application is renewed when a minister is reordained by another church. The court observed:

The question before us is whether the taxpayer’s return to the ministry after a five-year absence, combined with his ordination in a new church and his acceptance of a new belief in opposition to public insurance, provides an opportunity to opt out of the Social Security system. . . . ​Without performing a detailed analysis, we express concern that the Tax Court’s interpretation of [the deadline requirement] could arbitrarily and unconstitutionally interfere with the adherence to sincere religious beliefs by individuals, such as the taxpayer in this case, who undergo a genuine religious conversion, are ordained in a second church, and act within the defined statutory period to exempt themselves from tax on their self-employment income. . . . ​The plain language of the statute extends the exemption to “any individual who is a duly ordained, commissioned, or licensed minister of a church . . . ​upon filing an application . . . ​together with a statement that either he is conscientiously opposed to, or because of religious principles he is opposed to, the acceptance . . . ​of any public insurance.” [Pastor Hall] fits that profile exactly. The code also requires an applicant for exemption to file on or before “the due date of the return . . . ​for the second taxable year for which he has net earnings from self-employment [from his ministerial services] of $400 or more.” As recited above, [Pastor Hall] filed during the first taxable year in which his self-employment income from his new ministry exceeded $400. When an individual enters the ministry anew in a new church, having adopted a new set of beliefs about the propriety of accepting public insurance, it is logical and consistent with the [language of the tax code] to characterize that individual as a “new” minister for the purposes of seeking an exemption. The plain language does not preclude this sensible reading.

We are not concerned that our decision will open the floodgates for conniving Elmer Gantrys to dupe the Internal Revenue Service and opt out of the Social Security system without documenting a legitimate religious or conscientious reason to justify their exemption from the self-employment tax. It seems unlikely that individuals will forgo the retirement security represented by the Social Security system without a sincere religious objection. Ministers who do not switch churches may not belatedly opt out of the system. Ministers who do switch will still have a limited time frame in which to file for exemption following their assumption of the duties and functions of the new ministry. And once ministers elect exemption, that exemption is irrevocable.

The court’s decision in the Hall case has not opened the floodgates to other ministers. For the vast majority of ministers who fail to file an exemption application by the deadline summarized above, there is no second chance. They will never be able to exempt themselves from Social Security coverage.

The court’s decision in the Hall case is a narrow one and applies only to those few ministers who

Few ministers will satisfy these requirements. The ruling will not apply to ministers who do not change their church affiliation or doctrine. Ministers who did not file an exemption application within the prescribed period and who have served a local church for several years are not given a second chance to opt out of Social Security by this ruling. The court agreed with its decision in an earlier case denying an exemption from Social Security to a minister who changed his religious beliefs, was reordained, and then waited five years before submitting an exemption application. Ballinger v. Commissioner, 728 F.2d 1287 (10th Cir. 1984).

Chief Counsel Advice 200404048

The IRS chief counsel issued an opinion in 2003 addressing two questions pertaining to the exemption from self-employment taxes. The questions and the IRS chief counsel’s responses are noted below.

Question 1. Pastor G is a duly ordained minister of a church who is not opposed to the acceptance of public insurance. Pastor G subsequently has a change of faith and is ordained as a minister in another church, which results in a change in belief by Pastor G to being opposed to the acceptance of public insurance. Pastor G seeks exemption from self-employment tax.

The chief counsel correctly noted that the Hall case (see above) addressed this issue and concluded that a minister under these circumstances would requalify for exemption from Social Security. The chief counsel explained that the Hall case “provides that when an individual enters the ministry anew in a new church, having adopted a new set of beliefs about the propriety of accepting public insurance, it is logical and consistent with the [language of the tax code] to characterize that individual as a ‘new’ minister for the purposes of seeking an exemption.” As a result, the chief counsel concluded that “a minister seeking exemption from self-employment tax who has a change of faith that results in a change in belief to opposing the acceptance of public insurance . . . ​merely needs to sign the Form 4361.”

Question 2. Pastor T is a duly ordained minister of a church who, because of religious principles, is opposed to the acceptance of public insurance. Pastor T filed a Form 4361 that the IRS did not approve for reasons of late filing. Pastor T subsequently has a change of faith and is ordained as a minister in another church and has no resulting change in belief regarding public insurance (taxpayer continues to be opposed to the acceptance of public insurance). May the taxpayer file another Form 4361?

The chief counsel answered no to this question. The chief counsel’s opinion applied the Ballinger and Hall cases (see above) to this question and concluded:

As in Ballinger and Hall, the taxpayer had a change of faith. But unlike these cases, he did not have a change of belief in opposing the acceptance of public insurance. He has consistently opposed such insurance beginning with his first ministry. When an individual enters the ministry anew in a new church, having adopted a new set of beliefs about the propriety of accepting public insurance, it is logical and consistent with the [language of the tax code] to characterize that individual as a “new” minister for the purposes of seeking an exemption. Under the facts and circumstances presented, however, the taxpayer had his opportunity based on his beliefs to apply for an exemption after the first ordination, but the exemption was denied because he did not file the application timely as is required under the statute. The tax code does not give him a second opportunity to file a Form 4361 in the stated circumstances due only to a change in faith and entering the ministry in a new church

Four years later, the IRS reversed its opinion on the grounds that the plain language and legislative history of the tax code provided no grounds for such a position. GCM 39,042 (1983). This memorandum expressed no concern for burdens on changed religious beliefs, concluding that even if the minister’s first church did not oppose public insurance, the minister could have filed for exemption based on personal views.

How far back can the IRS assess Social Security taxes?

This question is relevant whenever a minister has unreported or underreported self-employment taxes. This condition can occur in several ways, including the following:

Under any of these circumstances, can the IRS assess back taxes and penalties all the way back to the first year of the person’s ministry? Section 6501(a) of the tax code specifies that taxes must be assessed within three years after a return is filed, though taxes may be assessed at any time in the case of failure to file a return, a willful attempt to evade, or a false return. Also, section 6501(e) specifies:

If the taxpayer omits from gross income an amount properly includible therein and—(i) such amount is in excess of 25 percent of the amount of gross income stated in the return, or (ii) such amount—(I) is attributable to one or more assets with respect to which information is required to be reported under section 6038D (or would be so required if such section were applied without regard to the dollar threshold specified in subsection (a) thereof and without regard to any exceptions provided pursuant to subsection (h)(1) thereof), and (II) is in excess of $5,000, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time within six years after the return was filed.

EXAMPLE A farmer filed a timely Form 1040 for several years, on which he correctly reported his income tax liability but failed to attach a Schedule SE or report or pay any self-employment tax (i.e., Social Security tax for self-employed persons) for any of those years. The question presented to the IRS was whether self-employment taxes could be assessed for all of the years in question. The IRS noted that section 6501(a) of the tax code specifies that taxes must be assessed within three years after a return is filed and concluded that “self-employment taxes are not separate and distinct from individual income taxes” but rather are “in all particulars an integral part of the income tax.” Accordingly, “the filing of a Form 1040 that fully reports all income but contains no entry with respect to self-employment tax will be treated as the filing of a valid self-employment tax return,” and therefore the “self-employment tax may not be assessed later than three years after the taxpayer files a Form 1040 and fully reports all income but makes no entry with respect to self-employment tax.” Revenue Ruling 82-185. See also Hoffa v. Commissioner, 50 T.C.M. 869 (1985).

EXAMPLE Pastor W was ordained in 1990 but has never paid Social Security taxes because of his belief that he submitted a timely exemption application (Form 4361) to the IRS. However, he does not have in his possession a copy of the exemption application, and he does not recall ever receiving back an approved copy from the IRS. In May 2025, he learns that an exemption from Social Security is not effective unless the applicant receives back from the IRS an approved copy of the exemption application. Pastor W is afraid to contact the IRS or Social Security Administration to confirm his exemption out of fear that he will be told that he is not exempt and that he will have to pay Social Security taxes all the way back to 1990 (with penalties and interest). According to Revenue Ruling 82-185 (see previous example), Pastor W will not be assessed Social Security taxes later than three years after he files a Form 1040 and fully reports all income (but makes no entry with respect to self-employment tax).

EXAMPLE In 1993 the Tax Court ruled that a minister, who had not paid self-employment taxes for the years 1983 through 1987 on the ground that the IRS had “improperly denied” his 1980 and 1983 applications for exemption from self-employment taxes, was liable for self-employment taxes for all the years in question. It is unclear how the IRS could assess back taxes for five years, and for years that clearly were more than three years prior to the IRS audit. In fact, 1983 (one of the years for which the IRS was demanding back taxes) was a decade prior to the court’s decision, and nearly a decade prior to the IRS audit. Reeder v. Commissioner, T.C. Memo. 1993-287.

Is an exemption from Social Security coverage irrevocable?

The tax code clearly states that ministers who exempt themselves from self-employment taxes cannot revoke their exemption. The decision to become exempt from self-employment taxes is “irrevocable.” IRC 1402(e)(4). Form 4361 itself warns that “once the application is approved, you cannot revoke it.” However, both Congress and the IRS have created limited exceptions as noted below.

Congressional relief

Congress has created three limited windows of time since 1977 to allow exempt ministers to revoke their exemption.

1977 legislation. Congress allowed ministers who were exempt as of December 20, 1977, to revoke their exemption by the due date of their federal income tax return for 1977 (April 15, 1978) by filing a Form 4361-A.

1987 legislation. The Tax Reform Act of 1986 gave exempt ministers another limited opportunity to revoke an exemption from self-employment taxes by filing a Form 2031 with the IRS by the due date for their federal income tax return for 1987 (April 15, 1988). The decision to revoke an exemption from self-employment tax was irrevocable. Ministers who revoked an exemption did not become liable for self-employment taxes all the way back to the date of their original exemption. Rather, they were required to pay self-employment taxes effective January 1, 1986, or January 1, 1987. Few exempt ministers revoked their exemption under this legislation, because most waited until the deadline and discovered that a revocation of their exemption would obligate them to pay several quarters of back taxes. On a modest income, this was a crushing liability that few could afford.

1999 legislation. At the end of 1999, Congress enacted legislation giving ministers the option to revoke an exemption from Social Security by filing Form 2031 with the IRS by April 15, 2002 (August 15, 2002, for ministers who obtained a four-month extension to file their federal tax return by filing a timely Form 4868 with the IRS). Ministers could revoke their exemption beginning on either January 1, 2000, or January 1, 2001. Ministers who revoked an exemption are not permitted to apply for exemption at a later time. The decision to revoke an exemption is irrevocable.

EXAMPLE Pastor D revoked his exemption from self-employment taxes in April 2003. In 2025 he decides that revoking the exemption was a bad idea, and he wants to revert back to exempt status. He will not be permitted to do so. A decision to revoke an exemption is irrevocable.

Revoking exemptions based on economic considerations

Many ministers exempted themselves from self-employment taxes solely for economic reasons. Since this is not a valid basis for exemption, can these ministers revoke their exemption and begin paying self-employment taxes? In a 1970 ruling, the IRS allowed an exempt minister to revoke his exemption on the ground of mistake. Revenue Ruling 70-197. The minister filed a timely Form 4361 with the IRS certifying that he was opposed based on his religious convictions to the acceptance of Social Security or any other public insurance benefits. However, he later explained that he filed the Form 4361 based on erroneous advice and that his filing was based solely on a personal decision that private insurance programs were financially preferable to participation in the Social Security program. The IRS ruled that such a minister was not legally exempt from self-employment tax:

In this case the taxpayer filed the Form 4361 solely for economic considerations and not because he was conscientiously opposed to, or because of religious principles opposed to, the acceptance of any public insurance of the type described on the form. Accordingly, it is held that the taxpayer did not qualify for the exemption since the Form 4361 filed solely for economic reasons is a nullity. Therefore, his net earnings from the exercise of his ministry . . . ​are subject to the [self-employment] tax.

According to this ruling, which has never been withdrawn or modified by the IRS, a Form 4361 that is filed “solely for economic reasons” is a “nullity.”

Section 4.19.6.4.11.3 (02-13-2022) of the IRS Internal Revenue Manual explicitly recognizes that under some conditions, ministers who have exempted themselves from self-employment taxes solely for economic reasons can revoke their exemption. The manual states:

EXAMPLE Some ministers have attempted to revoke an exemption from self-employment taxes in order to become eligible for Social Security retirement and Medicare benefits. Is this possible? A federal court in Illinois rejected a minister’s argument that he had revoked his exemption from Social Security. In 2012 the minister filed for retirement and Medicare benefits with the Social Security Administration. His application was denied, whereupon he requested a hearing before an administrative law judge (ALJ). The ALJ found that the church’s payment of FICA taxes did not matter. The church’s payment of FICA taxes for the minister was improper because a minister is subject to self-employment taxes, not FICA taxes. While employers pay FICA taxes for employees, they do not pay FICA taxes for individuals such as ministers who are subject to self-employment taxes. The ALJ further found that, to the extent that the minister performed nonministerial duties as a regular church employee, the church had not properly elected to treat him as an employee rather than a religious worker subject to self-employment taxes. The ALJ stated that the IRS did not allow voluntary Social Security payments if no taxes are due, referencing the following statement on the IRS website: “You cannot make voluntary social security payments if no taxes are due.” The ALJ concluded that the church’s FICA tax payments were not proper and did not cause the minister’s earnings to be counted as covered earnings for purposes of Social Security eligibility. Suey v. Saul, 2022 WL 3604510 (C.D. Ill. 2022).

What is the legal effect of an exemption based on economic considerations?

See the discussion of Internal Revenue Manual section 4.19.6.4.11.3 and Revenue Ruling 70-197 above.

Can ministers who have opted out of Social Security receive retirement and Medicare benefits based on the fully insured status of their spouse?

The Social Security Administration has informed the author of this tax guide that ministers who have opted out of Social Security can become eligible to receive retirement or Medicare benefits based on their spouse’s Social Security coverage. This makes sense. A minister’s decision to opt out of Social Security is based on religious opposition to the acceptance of Social Security benefits payable because of the minister’s services performed in the exercise of ministry. To the extent that a minister’s spouse is fully insured under Social Security because of nonministerial services, Social Security benefits the minister receives because of the spouse’s Social Security coverage are not based on services performed by the minister in the exercise of ministry and so are not covered by the minister’s exemption.

Can ministers who have opted out of Social Security purchase Medicare insurance after they reach age 65?

Possibly. Ministers who have opted out of Social Security and who have fewer than 40 quarters of secular earnings (and whose spouse has fewer than 40 quarters of nonministerial earnings subject to Social Security and Medicare taxes) may be able to obtain coverage by paying a Part A premium. The Part A monthly premium is $505. A reduced monthly premium of $278 applies to persons with 30–39 quarters of Social Security and Medicare coverage. These amounts are adjusted annually for inflation and reflect the 2024 amounts.

Part A coverage is for hospital benefits. Most people get Part A benefits once they turn age 65 because they paid Social Security and Medicare taxes for at least 40 quarters while gainfully employed. No additional premium must be paid. However, they must apply for this coverage after reaching age 65.

Medicare Part B helps pay for doctors’ services, outpatient hospital care, and some other medical services that Part A does not cover, such as the services of physical and occupational therapists and some home health care. Part B coverage is optional. It can be purchased for a monthly premium. The amount of the premium depends on several variables, including personal income. The standard Medicare Part B monthly premium was $174.70 in 2024 (or higher, depending on income).

The Part B premium a beneficiary pays each month is based on his or her annual income. Specifically, if a beneficiary’s modified adjusted gross income is greater than the legislated threshold amounts of $103,000 in 2024 for a beneficiary filing an individual income tax return or married and filing a separate return, and $206,000 for a beneficiary filing a joint tax return), the beneficiary is responsible for a larger portion of the estimated total cost of Part B benefit coverage.

In addition to the standard Part B premium, affected beneficiaries must pay an income-related monthly adjustment amount. About 4 percent of current Part B enrollees are expected to be subject to these higher premium amounts.

However, note that the exemption application (Form 4361) used by ministers to apply for exemption from self-employment taxes requires a minister to certify that “I am conscientiously opposed to, or because of religious principles I am opposed to, the acceptance (for services I perform as a minister . . .) 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.” The form states that “public insurance includes insurance systems established by the Social Security Act.” The question that arises is how a minister can apply for exemption from self-employment taxes based on opposition to receiving public insurance benefits deriving from ministerial services and then turn around and acquire Medicare coverage by voluntarily paying premiums. The IRS has not addressed the consequences, if any, of this apparent contradiction. A similar issue is whether exempt ministers can qualify for Social Security benefits based on their spouse’s income. It is clear that this is allowed (assuming the spouse is not a minister), since the minister’s eligibility for exemption from self-employment taxes only requires religiously based opposition to receiving public insurance benefits that derive from the performance of ministerial services. This issue is addressed under “Can ministers who have opted out of Social Security receive retirement and Medicare benefits based on the fully insured status of their spouse?” on page .

Several constitutional challenges have been brought against the exemption of ministers from Social Security coverage. So far, none has been successful. The courts have consistently held that the exemption of ministers who are opposed to participation based on religious principles is mandated by the First Amendment guaranty of religious freedom. To illustrate, a federal appeals court has explained the basis for the exemption as follows: “Congress provided the exemption for ministers to accommodate the free exercise and establishment clauses of the First Amendment to the extent compatible with a comprehensive national insurance program.” Blakely v. Commissioner, 720 F.2d 411 (5th Cir. 1983).

In its 2013 ruling striking down the ministers’ housing allowance as an unconstitutional preference for religion (later reversed on appeal), a Wisconsin federal district court suggested that the exemption of ministers from self-employment taxes was a permissible accommodation of religion because it is limited to “those who have a religious objection to receiving public insurance” and “limits the exemption to those whose religious exercise would be substantially burdened.” Freedom from Religion Foundation, Inc. v. Lew, 983 F. Supp. 2d 1051 (W.D. Wis. 2013).

The coverage and exemption rules summarized under “Exemption of Ministers from Social Security Coverage” (beginning on page ) are illustrated by the following examples.

Basis for exemption

EXAMPLE Pastor D, an ordained minister, is opposed to Social Security based on economic considerations. He is not eligible for the exemption.

EXAMPLE Pastor L is opposed based on nonreligious conscientious objection to the acceptance of Social Security benefits. He is not eligible for an exemption from Social Security coverage. Revenue Ruling 75-189.

EXAMPLE Pastor N is opposed based on religious principles to paying Social Security taxes. He does not qualify for the exemption. A minister’s opposition must be to the acceptance of benefits.

EXAMPLE In 1995 the Tax Court upheld the revocation of a minister’s exemption from Social Security on the ground that he did not qualify. This case is important because it illustrates that while ministers cannot revoke an exemption from self-employment taxes, the IRS may do so if it can establish that a minister did not qualify for exemption.

The Tax Court noted that a minister’s exemption application had been filed on time, but it concluded that the minister was not eligible for exemption because of comments he made during his trial. Among other things, the minister gave the following response when asked whether he was opposed to accepting Social Security benefits based on religious principles (as required by law to qualify for the exemption): “No. I am not opposed to the—to that, as a religious issue, no. We were advised to—by our accountant, to file for an exemption with the state, providing the state would allow it. And we asked the state to allow it, which they did.”

This is an extraordinary ruling that is significant for younger ministers who are trying to decide whether to file an application for exemption from self-employment taxes (Form 4361). The ruling indicates that filing a timely Form 4361—which contains a certification by the applicant that he or she meets all of the eligibility requirements—may not be enough. The IRS or the courts may later question whether the minister was eligible for the exemption when the Form 4361 was filed.

The court struggled with this conclusion. It acknowledged that the minister “signed an exemption application stating that he was opposed to public insurance because of his religious principles.” However, it found the minister’s “trial testimony to be more compelling.” This conclusion was reinforced by the mistakes that appeared on the Form 4361, which suggested to the court that the minister had not read the form and was not aware that he was ineligible for exemption.

Many ministers have filed a Form 4361 without being eligible for exemption from self-employment taxes. These ministers must recognize that the validity of their exemption may be questioned in an audit. Hairston v. Commissioner, T.C. Memo. Dec. 51,025(M) (1995).

Filing deadline

EXAMPLE Pastor G graduated from seminary in May 2023 and accepted an associate pastoral position in July of the same year. Assuming that he earns at least $400 in self-employment earnings in 2023 and subsequent years, he must file an exemption application (Form 4361) no later than April 15, 2025 (the due date for the federal income tax return for the second year in which he had net earnings from self-employment of $400 or more, any part of which derived from ministry). If Pastor G obtains an automatic six-month extension for filing his 2025 income tax return by filing a timely Form 4868, his Form 4361 is not due until October 15, 2025.

EXAMPLE The Tax Court ruled that a minister was not exempt from Social Security, since his exemption application was filed too late. While enrolled in college, a student (John) was licensed as a “student local pastor” for the United Methodist Church (“the Church”) and served in a local church in 1983 and 1984. His earnings exceeded $400 each year. John thereafter attended seminary, and during this time, he was licensed and served as the local pastor of a church from 1985 to 1987. In 1987 he was ordained as a deacon in the Church. In 1990 he was ordained as an elder. The ordained ministry of the Church consists of deacons and elders. In 1989 John filed an application for exemption from Social Security (self-employment) taxes by filing a Form 4361 with the IRS. He noted on the form that he had been ordained in 1987, when he was ordained as a deacon. Therefore, the form was filed prior to the deadline.

The Tax Court ruled that John’s application for exemption had been filed too late since the duties he performed as a licensed pastor in 1983 and 1984 (when a student) were the performance of services as a minister. The court noted that as a licensed local pastor in 1983 and 1984, John was authorized to preside over the ministration of sacerdotal functions, such as baptism, communion, and marriage, and he conducted religious worship. Therefore, “for those years [he] acted in a manner consistent with the performance of service by a duly ordained, commissioned, or licensed minister within the meaning of [the tax code].”

The court conceded that, as a licensed pastor, John had no voice or vote on official matters of his denomination. But it noted that “to perform services in the control, conduct, and maintenance of the church or organizations within the church, the minister need only have some participation in the conduct, control, and maintenance of the local church or denomination.” It concluded that during 1983 and 1984, as a licensed local pastor, John served “in the control, conduct, and maintenance” of his local church even though, as a licensed local pastor, he might not have done so with respect to his national denomination. Since John had net earnings of at least $400 derived from the performance of services as a minister in 1983 and 1984, his application for exemption from self-employment tax should have been filed prior to the due date of his 1984 federal income tax return (April 15, 1985). Because it was not, it was filed too late and was not deemed to be effective. Brannon v. Commissioner, T.C. Memo. 1999-370 (1999).

The IRS provides the following three examples in Publication 517 that illustrate the filing deadline (dates have been updated):

Example 1 Rev. Taylor Jaeger, a member of the clergy ordained in 2023, has net self-employment earnings as a minister of $450 in 2023 and $500 in 2024. Rev. Jaeger must file their application for exemption by the due date, including extensions, for his 2024 income tax return. However, if Rev. Jaeger doesn’t receive IRS approval for an exemption by April 15, 2025, his SE tax for 2024 is due by that date.

Example 2 Rev. Casey Wolfe has only $300 in net self-employment earnings as a minister in 2023 but earned more than $400 in 2022 and expects to earn more than $400 in 2024. Rev. Wolfe must file her application for exemption by the due date, including extensions, for her 2024 income tax return. However, if Rev. Wolfe doesn’t receive IRS approval for an exemption by April 15, 2025, her SE tax for 2024 is due by that date.

Example 3 In 2021, Rev. Riley Moss was ordained a minister and had $700 in net self-employment earnings as a minister. In 2022, Rev. Moss received $1,000 as a minister, but her related expenses were over $1,000. Therefore, she had no net self-employment earnings as a minister in 2022. Also in 2022, Rev. Moss opened a bookstore and had $8,000 in net self-employment earnings from the store. In 2023, she had net self-employment earnings of $1,500 as a minister and $10,000 net self-employment earnings from the store. Rev. Moss had net earnings from self-employment in 2021 and 2023 that were $400 or more each year, and part of the self-employment earnings in each of those years was for her services as a minister. Thus, Rev. Moss must file her application for exemption by the due date, including extensions, for her 2023 income tax return. However, if Rev. Moss doesn’t receive IRS approval for an exemption by April 15, 2024, her SE tax for 2023 is due by that date.

Eligibility requirements

EXAMPLE Pastor B is a licensed minister in a denomination that also ordains ministers. Pastor B is eligible for the exemption from Social Security coverage only if he can perform substantially the same religious duties as an ordained minister under the tenets and practices of his denomination. IRS Letter Ruling 9221025.

EXAMPLE Pastor H testified that he filed a timely exemption application, despite IRS assertions that the form was never received. Pastor H’s wife testified that she distinctly remembered signing the application along with her husband. The Tax Court, in rejecting Pastor H’s testimony, concluded that he had not been a “credible or convincing witness” and noted that “his wife’s signature was neither required nor provided for on the application form.” Holland v. Commissioner, 47 T.C.M. 494 (1983).

Filing an exemption application after the deadline

EXAMPLE Pastor F was ordained in 1994. In 2025 he becomes convinced, based on religious principles, that he should not accept Social Security benefits, and he submits an exemption application to the IRS. His exemption will not be accepted, and this will not violate his constitutional rights.

EXAMPLE Pastor P became convinced that accepting Social Security benefits violated his understanding of the Bible. However, this conviction developed only after the deadline for filing an exemption application (Form 4361) had expired. He is not eligible for the exemption. Paschall v. Commissioner, 46 T.C.M. 1197 (1983).

When an exemption takes effect

EXAMPLE Pastor O filed an exemption application (Form 4361) with the IRS within a year of his ordination in 1995, and he quit paying Social Security taxes that year. Pastor O never received back a copy of his application marked “approved” by the IRS. Even though Pastor O is sure he submitted the form, the income tax regulations specify that “the filing of an application for exemption on Form 4361 by a minister . . . ​does not constitute an exemption from the tax on self-employment income. . . . ​The exemption is granted only if the application is approved by an appropriate internal revenue officer.” As a result, Pastor O has never been exempt from Social Security coverage.

Note, however, that a federal court in Virginia has concluded that ministers may qualify for exemption if they (1) demonstrate that they were eligible for the exemption when they submitted an exemption application, (2) convince a jury that they mailed a timely Form 4361, and (3) persuade the IRS or a court to apply the same reasoning as the Virginia federal district court (i.e., that IRS “approval” of an exemption is a perfunctory, administrative act that is not a requirement for exemption). Eade v. United States, 792 F. Supp. 476 (W.D. Va. 1991) (discussed above).

Change of faith

EXAMPLE Pastor B has served as senior pastor of a church for many years. He did not apply for exemption from Social Security before the deadline for doing so expired several years ago because he was not opposed to receiving Social Security benefits based on his ministerial employment at that time. This year, however, Pastor B learns of IRS Counsel Advice 200404048 (see above) and begins to rethink his position on Social Security. He concludes that he is opposed based on religious convictions to receiving Social Security benefits, and he would like to submit a Form 4361 to claim exemption. He cannot do so. In the Hall case (which served as the basis for the chief counsel advice memorandum), a federal appeals court concluded that “ministers who do not switch churches may not belatedly opt out of the system.”

EXAMPLE Pastor G has served as associate pastor of a church for many years. He did not apply for exemption from Social Security before the deadline for doing so expired because no one told him about this option. However, he was never opposed on the basis of religious convictions to receiving Social Security benefits based on his ministerial employment. This year Pastor G learns of IRS Chief Counsel Advice 200404048 (see above) and views this as an opportunity to “save taxes.” He is ineligible to file a Form 4361 for two reasons. First, he does not qualify for exemption, since a desire to “save taxes” is not a valid basis for exemption. Second, in the Hall case (which served as the basis for the chief counsel advice memorandum), a federal appeals court concluded that “ministers who do not switch churches may not belatedly opt out of the system.”

EXAMPLE Pastor D has served as senior pastor of a church for many years. He did not apply for exemption from Social Security before the deadline for doing so expired because he was not opposed to receiving Social Security benefits based on his ministerial employment. However, over the years, Pastor D did develop a sincere opposition, based on religious convictions, to accepting any form of public insurance, including Social Security. He learns of IRS Chief Counsel Advice 200404048 (see above) and plans to file a Form 4361 exemption application. He is not eligible to do so. In the Hall case (which served as the basis for the chief counsel advice memorandum), a federal appeals court concluded that “ministers who do not switch churches may not belatedly opt out of the system.”

EXAMPLE Pastor J has served as senior pastor of a church for many years. He did not apply for exemption from Social Security before the deadline for doing so expired, because he was not opposed to receiving Social Security benefits based on his ministerial employment. However, last year Pastor J resigned his pastoral position, joined a new faith, and was ordained as a minister of the new faith. The new faith teaches opposition to receiving any form of public assistance, including Social Security. Pastor J adopts this teaching. He learns of IRS Chief Counsel Advice 200404048 (see above) and plans to file a Form 4361 exemption application this year.

Pastor J is eligible to do so since he meets all the requirements for renewal of exemption listed by the court in the Hall case and in the chief counsel advice memorandum: (1) change of church affiliation; (2) reordination by the new church; (3) development of opposition, based on one’s new faith, to the acceptance of Social Security benefits; and (4) submission of an exemption application (Form 4361) by the due date of the federal tax return for the second year in which one has net self-employment earnings of $400 or more, any part of which comes from the performance of ministerial services in one’s new faith.

EXAMPLE Pastor T was an associate pastor of a church for many years. She did not apply for exemption from Social Security before the deadline for doing so expired because she was not opposed to receiving Social Security benefits based on her ministerial employment. Five years ago, Pastor T resigned her pastoral position, joined a new faith, and was ordained as a minister of the new faith. The new faith teaches opposition to receiving any form of public assistance, including Social Security. Pastor T adopted this teaching but did not file an exemption application (Form 4361). This year she learns of IRS Chief Counsel Advice 200404048 (see above) and plans to file a Form 4361 exemption application. She is not eligible to do so, since the deadline for filing a new application for exemption has expired.

EXAMPLE Pastor K is the senior pastor of a church. He did not apply for exemption from Social Security before the deadline for doing so expired, since he was not opposed to receiving Social Security benefits based on his ministerial employment. However, last year Pastor K resigned his pastoral position and ordination and became associated with a new faith that teaches opposition to receiving any form of public assistance, including Social Security. The new faith does not ordain ministers, but Pastor K serves as a minister in one of its churches. Pastor K adopts the teaching of his new faith regarding Social Security. He learns of IRS Chief Counsel Advice 200404048 (see above) and plans to file a Form 4361 exemption application this year. It is likely, but not certain, that Pastor K is eligible to do so.

In the Hall case, a federal appeals court ruled that the following requirements must be met in order to requalify for exemption from Social Security: (1) change of church affiliation; (2) reordination by the new church; (3) development of an opposition, based on one’s new faith, to the acceptance of Social Security benefits; and (4) submission of an exemption application (Form 4361) by the due date of the federal tax return for the second year in which one has net self-employment earnings of $400 or more, any part of which comes from the performance of ministerial services in one’s new faith.

Pastor K meets all these requirements except for the second one (reordination by the new church). The Hall case explicitly requires that a minister not only change faiths to requalify for exemption after the original deadline has expired but also that the minister be reordained by the new faith. IRS Chief Counsel Advice 200404048 (see above) contains the same language. It states that the Hall case “provides that when an individual enters the ministry anew in a new church, having adopted a new set of beliefs about the propriety of accepting public insurance, it is logical and consistent with the [language of the tax code] to characterize that individual as a ‘new’ minister for the purposes of seeking an exemption.” This language strongly supports the conclusion that reordination is required.

On the other hand, in the Ballinger case (discussed above), a federal appeals court made the following observation:

Not all churches or religions have a formally ordained ministry, whether because of the nature of their beliefs, the lack of a denominational structure or a variety of other reasons. Courts are not in a position to determine the merits of various churches nor an individual’s conversion from one church to another. Thus, we cannot hold that an individual who functions as a minister in a church which does not ordain, license or commission that individual in a traditional or legally formal manner is not entitled to the exemption. Nor can we hold that an individual who has a change of belief accompanied by a change to another faith is not entitled to the exemption. We interpret Congress’ language providing an exemption for any individual who is “a duly ordained, commissioned or licensed minister of a church” to mean that the triggering event is the assumption of the duties and functions of a minister.

EXAMPLE Pastor M is the senior pastor of a church. He did not apply for exemption from Social Security before the deadline for doing so expired because he was not opposed to receiving Social Security benefits based on his ministerial employment. This year he learns about IRS Chief Counsel Advice 200404048 (see above) and is told by another pastor that if he “switches churches,” the deadline for filing an exemption application (Form 4361) will be reset. This advice is incorrect. A change of faith is only one requirement to requalify for exemption after the original deadline has expired. The other requirements, as noted above, are reordination by the new church; acquiring an opposition, based on one’s new faith, to the acceptance of Social Security benefits; and submitting an exemption application (Form 4361) by the due date, including extensions, of the federal tax return for the second year in which one has net self-employment earnings of $400 or more, any part of which comes from the performance of ministerial services in one’s new faith. If these additional requirements are not met, Pastor M will not requalify for exemption even if he does change his faith.

EXAMPLE Pastor L was an associate pastor of a church for many years. This year she accepts a position as senior pastor in a different church associated with the same faith. Pastor L did not apply for exemption from Social Security before the deadline for doing so expired because she was not opposed to receiving Social Security benefits based on ministerial employment. She learns about IRS Chief Counsel Advice 200404048 (see above) and is told by another pastor that by accepting the new pastoral position, she requalifies for opting out of Social Security if she so chooses. This advice is incorrect. Pastor L does not requalify for exemption, since she has not had a change of faith or been reordained in a new faith.

EXAMPLE Pastor G has served as senior pastor of a church for many years. He did not apply for exemption from Social Security before the deadline for doing so expired because he was not opposed to receiving Social Security benefits based on his ministerial employment. However, last year Pastor G resigned his pastoral position, joined a new faith, and was ordained as a minister of the new faith. The new faith has no position on participation in Social Security. This year Pastor G learns of IRS Chief Counsel Advice 200404048 (see above) and sees it as an opportunity to be relieved of the burden of paying self-employment taxes. He does not requalify for exemption, for two reasons:

First, he has not been reordained by a faith that is opposed to the acceptance of public insurance benefits (including Social Security). The chief counsel advice memorandum states, “When an individual enters the ministry anew in a new church, having adopted a new set of beliefs about the propriety of accepting public insurance, it is logical and consistent with the [language of the tax code] to characterize that individual as a ‘new’ minister for the purposes of seeking an exemption.” This language indicates that a change of belief about the propriety of accepting public insurance benefits must reflect the views of one’s new faith.

Second, Pastor G’s desire to be relieved of the burden of paying self-employment taxes does not qualify as a basis for exemption.

In 2009 the IRS issued updated audit guidelines for its agents to follow when auditing ministers. The guidelines inform agents that for ministers to claim exemption from self-employment tax, they must satisfy the following requirements:

The guidelines further clarify that

Form 4361 must be filed by the due date of the Form 1040 (including extensions) for the second tax year in which at least $400 in self-employment ministerial earnings was received. The 2 years do not have to be consecutive. An approved Form 4361 is effective for all tax years after 1967 for which a minister received $400 or more of self-employed income for ministerial services.

The exemption from self-employment tax applies only to services performed as a minister. The exemption does not apply to other self-employment income. To determine if a minister is exempt from self-employment tax, request that he or she furnish a copy of the approved Form 4361 if it is not attached to the return. If the taxpayer cannot provide a copy, order a transcript for the year under examination. The ADP and IDRS Information handbook shows where the ministers’ self-employment exemption codes are located on the transcripts and what the codes mean. Transcripts will not show exemption status prior to 1988. If the transcript does not show a MIN SE indicator and the taxpayer still claims that he or she is exempt from self-employment tax, the Taxpayer Relations Branch at the Service Center where the Form 4361 was filed can research this information and provide the taxpayer with a copy. The Social Security Administration in Baltimore also can provide the information on exemption for an individual.

The guidelines contain the following four examples (dates have been updated):

EXAMPLE H had ministerial earnings of $400 in 2023 and $1,800 in 2024. He has until April 15, 2025 (if no extension has been filed), to file Form 4361. If he files for exemption but does not receive the approved Form 4361 back from the IRS by the due date for his 2024 tax return, the self-employment tax for 2024 is still due by that date. If he later receives the approved 4361, he may amend his 2024 return.

EXAMPLE J earned $500 in 2018, $300 in 2022, and $6,000 in 2024 from ministry. She has until April 15, 2025 (if no extension has been filed), to file Form 4361. If she files for exemption but does not receive the approved Form 4361 back from the IRS by April 15, 2025, she must pay the self-employment tax with her 2024 return but may file an amended return after the exemption is approved. J may file a claim for refund (an amended tax return) within three years from the time the return was filed or within two years from the time the tax was paid, whichever is later.

EXAMPLE K, ordained in 2023, has $7,500 in net earnings as a minister in both 2023 and 2024. He files Form 4361 on March 5, 2025. If the exemption is granted, it is effective for 2023 and all following years.

EXAMPLE L, an ordained minister, has applied for and received exemption from self-employment tax for his services as a minister. In 2025 he has ministerial income of $12,000 and income from his shoe repair business, a sole proprietorship, of $9,000. He must compute self-employment tax on the $9,000.

A minister whose exemption application is duly approved by the IRS is exempt from paying Social Security taxes on compensation earned from the performance of services in the exercise of ministry. The term services performed in the exercise of ministry is a technical one that is defined fully in Chapter 3 of this text.

The income tax regulations specify that “a minister performing service in the exercise of his ministry may be eligible to file an application for exemption on Form 4361 even though he is not opposed to the acceptance of benefits under the Social Security Act with respect to service performed by him which is not in the exercise of his ministry.” Treas. Reg. 1.1402(e)-2A(a)(2). As a result, a minister whose exemption application (Form 4361) has been approved by the IRS will be eligible to receive Social Security benefits based on earnings not covered by the exemption, assuming that such earnings are sufficient to entitle the minister to the benefits. Note also that the longer a minister is exempt from Social Security coverage, the lower his or her Social Security retirement benefits will tend to be.

EXAMPLE A pastor of a local church also operated a private business as a handyman. The pastor, who had filed for exemption from self-employment taxes, assumed that the exemption applied to his handyman income. As a result, he did not pay self-employment tax on these earnings. The IRS audited his tax return and determined that the secular earnings were subject to the self-employment tax. The Tax Court agreed, noting that “although the income [the pastor] derived from his handyman business may have enabled him to sustain his ministry at [his church] and to fulfill the obligation of supporting his family, those reasons or motives do not cause the handyman business to be integral to the conduct of his ministry.” The court acknowledged that ministers can exempt themselves from self-employment taxes if they meet several conditions, but the exemption applies only to “services performed in the exercise of ministry.” Such services did not include the pastor’s work as a handyman. Williams v. Commissioner, T.C. Memo. 1999-105.

In most cases, ministers must pay self-employment tax on salaries and other income for services performed as a minister. But if you filed Form 4361 and received IRS approval, you will be exempt from paying SE tax on those net earnings. If you had no other income subject to SE tax, enter “Exempt—Form 4361” on Schedule 2 (Form 1040), line 4. However, if you had other net earnings of $400 or more subject to SE tax, see the flowchart at the top of Schedule SE.

The Social Security tax for ministers who have not filed a timely exemption application is computed by multiplying the applicable self-employment tax rate by the minister’s net earnings from self-employment. The computation of self-employment earnings for ministers is summarized in the sidebar “Clergy self-employment earnings” on page .

In computing their self-employment tax liability, can ministers deduct their unreimbursed business expenses and business expenses reimbursed by their employing church under a nonaccountable plan? This question has been addressed by the IRS in Revenue Ruling 80-110, Publication 517, the IRS audit guidelines for ministers, and the instructions for Schedule SE (Form 1040), as noted below.

Revenue Ruling 80-110

In Revenue Ruling 80-110, the IRS addressed the following question: can a pastor who is unable to deduct unreimbursed business expenses of $500 in computing income taxes, since he was unable to itemize deductions on Schedule A (Form 1040), deduct the expenses in computing self-employment taxes on Schedule SE (Form 1040)? The IRS concluded that he could. It noted that section 1402 of the tax code specifies that ministers are self-employed for Social Security purposes with respect to compensation received from the performance of ministerial services, and they can reduce self-employment earnings in computing their self-employment tax liability by “the deductions attributable to the trade or business.”

This language suggests that ministers can deduct any expenses associated with their ministry (their “trade or business”), including unreimbursed and nonaccountable reimbursed expenses, even though an itemized deduction on Schedule A (Form 1040) for these expenses in computing income taxes has been suspended by Congress for tax years 2018 through 2025.

In Revenue Ruling 80-110, the IRS observed:

Section 1402(a) provides that the term “net earnings from self-employment” means the gross income derived by an individual from any trade or business carried on by the individual, less the deductions attributable to the trade or business. . . . ​The trade and business deductions of a minister are allowable as deductions for purposes of computing the tax on self-employment income. [Therefore] the $500 is deductible on the Schedule SE (Form 1040) in computing the minister’s self-employment tax. [Emphasis added.]

Revenue Ruling 80-110 has never been modified or repealed by the IRS.

In summary, there is no requirement in section 1402 that only expenses qualifying for an income tax deduction reduce self-employment earnings, and this suggests that expenses incurred in a minister’s “trade or business” of ministry are deductible in computing self-employment taxes.

IRS Publication 517

The most recent (2023) edition of IRS Publication 517 states:

When figuring your net earnings from self-employment, deduct all your expenses related to your ministerial services performed as a self-employed person. These are ministerial expenses you incurred while working other than as a common-law employee of the church. They include expenses incurred in performing marriages and baptisms, and in delivering speeches. Deduct these expenses on Schedule C (Form 1040), and carry the net amount to line 2 of Schedule SE (Form 1040).

Wages earned as a common-law employee (explained earlier) of a church are generally subject to self-employment tax unless an exemption is requested. . . . ​Subtract any allowable expenses from those wages, include the net amount on line 2 of Schedule SE (Form 1040), and attach an explanation. Don’t complete Schedule C (Form 1040). . . .

Your employer will combine any reimbursement paid to you under a nonaccountable plan with your wages, salary, or other compensation and report the combined total in box 1 of your Form W-2. Because reimbursements under a nonaccountable plan are included in your gross income, you can deduct your related expenses (for SE and income tax purposes) regardless of whether they are more than, less than, or equal to your reimbursement.

IRS audit guidelines for ministers

The revised audit guidelines for ministers that were issued by the IRS in 2009 contain the following example:

EXAMPLE M receives a salary from the church of $20,000. His parsonage/housing allowance is $12,000. The church withholds federal income tax (by mutual agreement) and issues him a Form W-2. He has unreimbursed employee business expenses (before excluding nondeductible amounts attributable to his exempt income) of $5,200. His net earnings for self-employment tax are $26,800 ($20,000 + $12,000 − $5,200). Note that all of M’s unreimbursed business expenses are deductible for self-employment tax purposes, although the portion attributable to the exempt housing allowance is not deductible for federal income tax purposes.

This example states that unreimbursed employee business expenses are deductible in computing self-employment taxes. The example does not indicate that this result assumes that the expenses are deductible as an itemized expense on Schedule A (Form 1040) in computing income taxes.

Schedule SE instructions

Self-employment taxes are computed on Schedule SE (Form 1040). The instructions for Schedule SE provide: “If you were a duly ordained minister who was an employee of a church and you must pay SE tax, the unreimbursed business expenses that you incurred as a church employee are not deductible as an itemized deduction for income tax purposes. However, when figuring SE tax, subtract on line 2 the allowable expenses from your self-employment earnings and attach an explanation” (emphasis added).

The instructions are clear that unreimbursed employee business expenses are deductible on Schedule SE in computing SE tax regardless of whether they are deductible in computing income taxes.

Conclusion

In summary, the clear implication of the precedent summarized above is that unreimbursed business expenses and reimbursed business expenses under a nonaccountable plan are deductible by ministers in computing their self-employment tax liability even though an income tax deduction for these expenses was suspended by Congress for tax years 2018 through 2025. The key point is that there is no requirement under section 1402 that only those business expenses that can be claimed as itemized deductions on Schedule A are deductible in computing net earnings from self-employment. This understanding is clearly reflected in Publication 517 and the IRS audit guidelines for ministers.

The IRS has acknowledged that the Deason rule does not apply to the deductibility of business expenses on Schedule SE. This means that ministers do not need to reduce their business expense deduction on Schedule SE by the percentage of their total church compensation that consists of a housing allowance. The reason is that the housing allowance is not an exclusion in computing self-employment taxes on Schedule SE. This position is reflected in IRS Publication 517 and the IRS audit guidelines for ministers:

EXAMPLE M receives a salary from the church of $20,000. His parsonage/housing allowance is $12,000. The church withholds federal income tax (by mutual agreement) and issues him a Form W-2. He has unreimbursed employee business expenses (before excluding nondeductible amounts attributable to his exempt income) of $5,200. His net earnings for self-employment tax are $26,800 ($20,000 + $12,000 − $5,200). Note that all of M’s unreimbursed business expenses are deductible for self-employment tax purposes, although the portion attributable to the exempt housing allowance is not deductible for federal income tax purposes. IRC section 265, regarding the allocation of business expenses related to exempt income, relates to income tax computations but not self-employment tax computations.

The income tax regulations specify that “income which is excludable from gross income under any provision of subtitle A of the Internal Revenue Code is not taken into account in determining net earnings from self-employment,” with certain exceptions. Treas. Reg. 1.1402(a)-2(a). This means that most income tax exclusions (see Chapter 5) are also excludable in computing self-employment taxes. The exceptions, which are included in income when computing self-employment taxes, include (1) the housing allowance (unless provided to a retired minister), (2) the fair rental value of a church-provided home (unless provided to a retired minister), (3) the foreign earned income exclusion, and (4) meals and lodging provided for the convenience of an employer. Apart from these exceptions, the general rule is that the exclusions discussed in Chapter 5 are excludable in computing both income taxes and self-employment taxes.

EXAMPLE A church provided free meals to ministers who were required to reside in housing on the church’s premises to fulfill their duties. The IRS concluded that the value of the meals was taxable income to the ministers in computing self-employment taxes. It noted that section 1402(a)(8) of the tax code prevents the exclusion of meals “for the convenience of the employer” (under section 119) from reducing a minister’s net earnings. Thus, the value of meals and cash reimbursements for groceries furnished by the church to its ministers “must be included in the ministers’ net earnings from self-employment” for self-employment tax purposes. IRS Letter Ruling 9129037.

The definition of net earnings from self-employment includes the fair rental value of a church-owned parsonage provided without charge to a minister, as well as a housing allowance paid to a minister who owns or rents a home. The fair rental value of a parsonage is the fair rental value of a furnished parsonage. This is often a difficult amount to compute. See Chapter 6 for a discussion of this important term.

Generally, the taxable fringe benefits discussed in Chapter 4 are included in a minister’s income when computing self-employment taxes.

The 15.3-percent self-employment tax rate consists of two components: (1) a Medicare hospital insurance tax of 2.9 percent and (2) an “old-age, survivor and disability” (Social Security) tax of 12.4 percent. For 2024, the Medicare component of the self-employment tax (the 2.9-percent tax rate) applied to all net earnings from self-employment, regardless of amount, while the Social Security component (the 12.4-percent tax rate) applied to net earnings from self-employment up to $176,100. As a result, persons who receive compensation in excess of $176,100 in 2025 pay the full 15.3-percent tax rate for net self-employment earnings up to $176,100 and the Medicare rate of 2.9 percent on all net earnings, regardless of amount. This provision directly impacts ministers, who always are considered self-employed for Social Security with respect to their ministerial services.

Self-employed persons pay the entire Social Security and Medicare tax rate of 15.3 percent. Unlike employees, they do not split the cost with an employer. Because of the unfair burden this places on self-employed persons, the tax code gives them two deductions:

In explaining these changes, Congress stated that its purpose was “to achieve parity between employees and the self-employed” for Social Security purposes.

A minister’s calculation of estimated taxes should incorporate (1) the application of the Medicare component of the self-employment tax (the 2.9-percent tax rate) to all net earnings from self-employment, regardless of amount, and (2) the two special deductions described above. Some ministers fail to take these rules into account in calculating their estimated taxes.

Many churches agree to pay half of their ministers’ self-employment taxes to achieve parity with their treatment of nonminister employees for whom they pay half of their Social Security and Medicare taxes. Any church considering this practice should note two points. First, the two special deductions summarized above make it difficult, if not impossible, to determine in advance what “half” of a minister’s self-employment tax will be.

Second, “half” of a minister’s self-employment tax liability for a particular year will not be known until the minister files a tax return (Form 1040, Schedule SE) reporting actual self-employment taxes. Because of these issues, church leaders should consider the following alternatives:

Churches that pay half of a minister’s self-employment tax are putting the minister in a better position than nonminister staff since the minister can claim the two special deductions summarized above.

Ministers report their self-employment taxes on Schedule SE (Form 1040). Most ministers use the “short” Schedule SE rather than the “long” form. This means that they complete Section A on page 1 of the schedule rather than Section B on page 2. Ministers report their net self-employment earnings on line 2 of Section A.

An “optional nonfarm” method for computing Social Security earnings is available for up to five years. Several conditions apply. See the Social Security Administration website or the instructions for Schedule SE (Form 1040) for details.

The IRS has issued audit guidelines for its agents to follow when auditing ministers. The guidelines inform agents that “to compute self-employment tax, allowable trade or business expenses are subtracted from gross ministerial earnings, then the appropriate rate is applied.” The guidelines instruct agents to include the following items in a minister’s gross income for self-employment tax:

The guidelines provide the following examples (applying pre-2018 law governing the deductibility of employee business expenses):

EXAMPLE M receives a salary from the church of $20,000. His parsonage/housing allowance is $12,000. The church withholds federal income tax (by mutual agreement) and issues him a Form W-2. He has unreimbursed employee business expenses (before excluding nondeductible amounts attributable to his exempt income) of $5,200. His net earnings for self-employment tax are $26,800 ($20,000 + $12,000 − $5,200). Note that all of M’s unreimbursed business expenses are deductible for self-employment tax purposes, although the portion attributable to the exempt housing allowance is not deductible for federal income tax purposes. IRC section 265, regarding the allocation of business expenses related to exempt income, pertains to income tax computations but not self-employment tax computations.

EXAMPLE G received a salary of $12,000 and a housing allowance of $9,000 and earned $3,000 for various speaking engagements, weddings, funerals, etc., all related to her ministry. She reports her salary as “wages” on page 1 of her Form 1040 and her fees on Schedule C. Because her actual housing costs ($6,000) were less than her housing allowance and the FRV of her home for the year, she must include $3,000 of her housing allowance as “other income” for income tax purposes. Her total business expenses are $4,500. . . . ​G computes her self-employment taxable income as follows: $12,000 salary plus $9,000 housing allowance plus $3,000 Schedule C income less $4,500 total business expenses equals $19,500 self-employment income.

An “Additional Medicare Tax” applies to an individual’s Medicare wages that exceed a threshold amount based on the taxpayer’s filing status. Employers are responsible for withholding the 0.9-percent Additional Medicare Tax on an individual’s wages paid in excess of $250,000 (married filing jointly) or $200,000 (single). An employer is required to begin withholding the Additional Medicare Tax in the pay period in which it pays wages more than the threshold amount summarized above and to continue to withhold it each pay period until the end of the calendar year. There is no employer match for the Additional Medicare Tax. For more information, see the instructions for Form 8959 and “Questions and Answers for the Additional Medicare Tax” at IRS.gov.

Many churches employ persons who are receiving Social Security retirement benefits. But persons younger than full retirement age may have their Social Security retirement benefits cut if they earn more than a specified amount. Full retirement age (the age at which you are entitled to full retirement benefits) for persons born in 1943 through 1954 is 66 years. Table 9-1 shows the full retirement ages based on year of birth.

You can collect Social Security retirement benefits and work at the same time. However, if you are younger than full retirement age and make more than the yearly earnings limit, your benefit will be reduced. Starting with the month you reach full retirement age, your benefits will not be reduced no matter how much you earn. The Social Security Administration (SSA) uses the following earnings limits to reduce your benefits: 

If you are under full retirement age for the entire year, it deducts $1 from your benefit payments for every $2 you earn above the annual limit. For 2025, that limit is $23,400. In the year you reach full retirement age, your benefits are reduced $1 for every $3 you earn above a different limit. Only earnings before the month you reach your full retirement age are counted. If you will reach full retirement age in 2025, the limit on your earnings for the months before full retirement age is $62,160.

Starting with the month you reach full retirement age, you can collect your benefits no matter how much you earn from working. In addition, the SSA will recalculate your benefit amount to leave out the months when it reduced or withheld benefits due to your excess earnings.

When the SSA figures out how much to deduct from your benefits, it counts only the wages you make from your job or your net profit if you are self-employed. Also included are bonuses and vacation pay. Not counted are pensions, annuities, investment income, interest, or veterans’ or other government or military retirement benefits.

Your benefits may increase when you work. As long as you continue to work, even if you are receiving benefits, you will continue to pay Social Security taxes on your earnings. However, the SSA will check your record every year to see whether the additional earnings you had will increase your monthly benefit. If there is an increase, it will send you a letter informing you of your new benefit amount.

Some people who retire in mid-year have already earned more than their yearly earnings limit. A special rule applies in this situation, which is usually the first year of retirement. The special rule lets the SSA pay a full Social Security check for any whole month that it considered you retired, regardless of your earnings from working. If you will be under full retirement age for all of 2025, you are considered retired in any month that your earnings are $1,810 or less and you did not perform substantial services in self-employment. If you reach full retirement age in 2025, you are considered retired in any month that your earnings are $5,180 or less and you did not perform substantial services in self-employment. Substantial services in self-employment means that you devote more than 45 hours per month to the business or between 15 and 45 hours to a business in a “highly skilled” occupation.

Section 1402(g) of the tax code permits self-employed members (whether ministers or laypersons) of certain religious faiths to exempt themselves from Social Security coverage if the following conditions are satisfied:

Such an application for exemption, if granted, is irrevocable unless the member ceases to be a member of the sect or no longer adheres to the sect’s tenets or teachings pertaining to participation in the Social Security system.

The regulations interpreting this statute specify that a member is eligible for the exemption even if he or she is not opposed to obtaining personal liability or property insurance.

The United States Supreme Court emphasized in a 1982 ruling that the exemption applied only to self-employed persons. Accordingly, an Amish employer who employed several persons to work on his farm and in his carpentry shop was not eligible for the exemption despite the fact that both he and his Amish employees were opposed to Social Security coverage on the basis of well-established Amish religious beliefs. United States v. Lee, 455 U.S. 252 (1982). The court accepted the contention that compulsory participation in the Social Security program would interfere with the right of the Amish employer and employees to freely exercise their religion. This, however, was only the beginning and not the end of the court’s inquiry, since “the state may justify a limitation on religious liberty by showing that it is essential to accomplish an overriding governmental interest.” It concluded that the government’s interest in “assuring mandatory and continuous participation in and contribution to the Social Security system” was an interest of sufficient magnitude to override the interest of Amish employers and employees in freely exercising their religion.

Congress amended the law in 1988 to extend this exemption to employees for tax years beginning in 1989 (in effect, overruling the Supreme Court’s decision in United States v. Lee). However, the exemption applies only if the employee and employer are both members of a qualifying religious sect (as described above). The exemption is available to both the employer and employee portion of Social Security and Medicare taxes. No time restriction is imposed on the filing of employee exemption applications, and the law prospectively amended section 1402(g)(2) by eliminating the time restrictions on filing exemption applications by self-employed persons. IRC 3127.

The courts have strictly enforced the requirement that the member belong to a religious sect having established tenets or teachings in opposition to Social Security coverage and that provides for its dependent members. To illustrate, a Seventh-Day Adventist was denied an exemption despite his claim that he was personally opposed to Social Security coverage on the basis of religious beliefs, since the Seventh-Day Adventist Church had no established tenets or teachings against Social Security coverage and made no provision for the support of its dependent members. Varga v. United States, 467 F. Supp. 1113 (D. Md. 1979).

The exemption has been challenged on the ground that it unconstitutionally discriminates against persons who personally are opposed on the basis of religious beliefs to Social Security coverage but who are not members of a religious sect that has established tenets or teachings in opposition to Social Security coverage and that provides for its dependent members. Such challenges thus far have failed. One court has stated:

The limitation by Congress of the exemption of members of certain religious sects with established tenets opposed to insurance and which made reasonable provisions for their dependent members was in keeping with the overall welfare purpose of the Social Security Act. This provision provided assurance that those qualifying for the exemption would be otherwise provided for in the event of their dependency. Palmer v. Commissioner, 52 T.C. 310 (1969). See also Bethel Baptist Church v. United States, 822 F.2d 1334 (3^rd Cir. 1987); May v. Commissioner, T.C. Memo. Dec. 51,242(M) (1996).

The easiest way to access your Social Security account information is to open a “my Social Security” account with the Social Security Administration. Doing so is easy. Just go to SSA.gov/myaccount and select “Create an Account” to get started. You must be 18 years old and have a valid Social Security number, U.S. mailing address (or a military address if deployed overseas), and email address.

In some cases—such as if credit card fraud was reported under your name or Social Security number—you may have to contact your local Social Security office to open a my Social Security account.

Once registered, you can

If you’re currently receiving benefits, you can

Is Social Security a good investment? Many ministers ask this question when considering filing for exemption from self-employment taxes. Of course, in one sense, such a question is irrelevant since ministers are subject to self-employment taxes unless they are opposed to the acceptance of Social Security benefits on the basis of religious principles and they file a timely exemption application. Whether Social Security is a “good investment” has nothing to do with this decision.

Historically, Social Security has been a good investment for most workers, including ministers. But benefits received in the past were based on a larger percentage of workers and a smaller percentage of beneficiaries. In the future, fewer workers will be supporting larger numbers of beneficiaries. Undoubtedly, changes will have to be made, which likely will include one or more of the following:

These potential changes suggest that Social Security should be viewed as a supplemental benefit plan, as it was originally intended, rather than as an exclusive source of retirement income.

Social Security coverage provides several benefits, including retirement, survivors, disability, and Medicare. Although some ministers who have filed an exemption application conceivably could have duplicated the coverage Social Security provides, this is unlikely. Most exempt ministers only think of duplicating the retirement benefits through some form of retirement arrangement, forgetting that Social Security coverage provides more than these benefits. Social Security benefits have the additional advantages of being inflation-indexed and nontaxable (for most people).

Generally, you should apply for retirement benefits three months before you want your benefits to begin. Even if you don’t plan to receive benefits right away, you still should sign up for Medicare three months before you reach age 65.

In 1983 Congress amended the Social Security Act to include a “windfall elimination provision” (WEP). The WEP was added to eliminate “windfall” Social Security benefits for retired and disabled workers receiving pensions from employment not covered by Social Security.

The purpose of the provision was to remove an unintended advantage that the weighting in the regular Social Security benefit formula would otherwise provide for persons who have substantial pensions from noncovered employment. This weighting is intended to help workers who spent their whole lives in low-paying jobs by providing them with a benefit that is relatively higher in relation to their prior earnings than the benefit that is provided for higher-paid workers.

However, because benefits are based on average earnings in employment covered by Social Security over a working lifetime (35 years), a worker who has spent part of his or her career in employment not covered by Social Security appears to have lower average lifetime earnings than he or she actually had. Years with no covered earnings are counted as years of zero earnings for purposes of determining average earnings for Social Security benefit purposes. Without the WEP, such a worker would be treated as a low lifetime earner for Social Security benefit purposes and inappropriately receive the advantage of the weighted benefit formula. The WEP provision eliminates the potential windfall by providing for a different, less heavily weighted benefit formula to compute benefits for such persons.

In some cases the WEP may apply to ministers who elected to exempt themselves from self-employment taxes and who are receiving Social Security benefits based on their spouse’s coverage. For more information on this important limitation, contact your nearest Social Security Administration office.

Legislation was introduced in Congress in 2023 (the Social Security Fairness Act, H.R. 82) to eliminate the windfall elimination provision. While not enacted, this proposed legislation had 326 cosponsors. A companion bill in the Senate had 62 cosponsors.