With the implementation of the Patient Protection and Affordable Care Act (also known as the Affordable Care Act), I have had several people ask me about how the Act mandates may affect ministers who have an IRS-approved Form 4361 (the form ministers use within the first two years of ministry to opt out of Social Security and Medicare). Does a minister's IRS-approved Form 4361 also exempt them from the Affordable Care Act?
I addressed this in my full analysis of the Affordable Care Act available in the CHURCH LAW & TAX REPORT archives on ChurchLawAndTax.com
For many years the tax code provided ministers with a limited opportunity to exempt themselves from paying self-employment (Social Security and Medicare) taxes on their ministerial income by filing a timely exemption application (Form 4361) with the IRS. A minister certifies on Form 4361 that "[he or she is] conscientiously opposed to, or because of [his or her] religious principles … opposed to, the acceptance (for services [he or she] 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."
Many ministers opt out of paying self-employment taxes by submitting a timely Form 4361 with the IRS. Does this exemption apply to the recently enacted health care legislation? Are these ministers exempt from the mandate to have health insurance?
Unlike the related exemption of members of certain religious faiths from the payment of Social Security taxes based on section 1402(g) of the tax code, the health care legislation contains no "religious conscience" exemption for such ministers. As a result, ministers who opted out of Social Security and Medicare by filing Form 4361 with the IRS are not exempt from the provisions of the health care legislation, including the insurance mandate.
Some ministers who opted out of Social Security will undoubtedly claim that the new law's failure to exempt them from its provisions violates the First Amendment guaranty of religious freedom. It is highly unlikely that such a claim will be successful. To illustrate, a number of ministers who failed to file a timely exemption application (Form 4361) from Social Security coverage 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 observed, "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).
Example. A pastor filed a timely application for exemption from self-employment taxes (Form 4361) with the IRS several years ago, opting out of the requirement to pay self-employment (Social Security) taxes on ministerial income. He does this on the basis of his religious-based opposition 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." This exemption applies only to the payment of self-employment taxes. It does not apply to the minister's coverage under the health care legislation.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.