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September 12, 2008
Guest Post: Social Security - In or Out?
Recently someone asked about the advantages and disadvantages of a minister opting out of Social Security. It's a common question that I'd like to address is further detail.
First, opting out of Social Security is a very personal decision and you will find a lot of differing opinions on this issue (primarily between those who have opted out and those who have not).
In the past, some have been wrongly encouraged to opt out purely as a tax savings measure. While this seemed like a good idea at the time, many of those ministers are now reaching retirement and have not saved nearly enough to provide for themselves and their families during retirement. Opting out according to the IRS should only be a as a result of opposition due to religious principles or conscientious religious objection to public insurance.
The Evangelical Council on Financial Accountability sums it up like this:
"A few clergy may qualify to elect out of self-employment tax under Section 1402(e), the timing of which is conditioned on their self-employment income in the Social Security sense, not the income tax sense. Therefore, Form 4361 must be filed by the due date of the minister's income tax return for the second year in which the minister had $400 or more of net ministerial income. To opt out of Social Security, a minister must certify that he opposes, either conscientiously or because of religious principles[emphasis mine], the acceptance of any public insurance (with respect to services performed as a minister), including Social Security coverage. Either opposition must be based on religious belief."
Guidestone Financial Resources of the SBC, also provides a great resource on helping ministers to make this determination. Guidestone offers this caution:
"In very limited circumstances, ministers may "opt out" of Social Security or exempt themselves from self-employment (SECA) taxes with respect to their ministerial earnings. However, very few ministers qualify for this exemption. Many new ministers apply to opt out without knowing they are ineligible. Ministers may apply to opt out only if they are opposed on the basis of religious considerations to accepting benefits from Social Security[emphasis mine]or any other public insurance system that provides retirement or medical benefits. They cannot apply if their sole objection to participation in the Social Security program is payment of taxes, or any other reason."
Another issue that I have seen in denominational life is that many organizations/churches provide a supplement to assist the minister with 1/2 of the Social Security taxes (A Social Security Stipend). In some organizations, the ministers who had "opted out" of Social Security did not receive this stipend, as it was reserved only for those who "had to pay the tax". So in effect, the supplement only helped those who were still in Social Security and the ones who had opted out were on their own completely. (Obviously, this does not seem totally fair, but that is often the way life is.)
If a minister opts out of Social Security (assuming they do not have another secular job) they need to replace Social Security with disability insurance, retirement savings, survivor benefits and some life insurance for their families. Also, normally a nonworking spouse can receive ½ of their working spouse's social security. If the minister opts out of Social Security, the non-working spouse will not receive any social security either and in case of the death of the working spouse, will have to rely on savings or the generosity of others to survive (See Mission: Dignity SBC) . Attorney and CPA,
If you still have questions and would like to discuss this further, e-mail me. I'd be happy to discuss them with you further.
This document has been prepared by Bill Townes, CPA, MBA as a ministry of the North American Mission Board. His ministry efforts are made possible through your gifts to the Cooperative Program and the Annie Armstrong Easter Offering.
More posts from Bill Townes:
Rules and timing of charitable gift receipts
Connecting stewardship with church planting
Posted by bstroup at September 12, 2008 1:43 AM
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