• Key point. Ministers may exempt themselves from paying self-employment taxes on their ministerial earnings by filing a timely exemption application with the IRS. The application must be filed by the due date of the federal tax return for the second year in which the minister has net earnings from self-employment of $400 or more, any portion of which comes from the performance of ministerial services. The performance of ministerial services may include services performed by licensed or commissioned ministers prior to their ordination.
The Tax Court ruled that a minister was not exempt from social security because his exemption application was filed too late. In order to be exempt from social security (self-employment) taxes, a minister must meet several requirements. One of these requirements is the submission of a timely exemption application (Form 4361) to the IRS. In order to be timely, the application must be filed by the due date of the federal tax return (Form 1040) for the second year in which the minister had net self-employment earnings of $400 or more, any portion of which derived from ministerial services. The facts of the Tax Court case are easily stated. 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 a deacon in the Church. In 1990 he was ordained an elder. The ordained ministry of the Church consists of deacons and elders. An individual can be licensed as a local pastor even though the individual has not been ordained a deacon or elder.