Do you opt out of paying the Self-Employment (Social Security) tax? Or do you pay into the system?
If you opt out, why? If not, why not?
I’m interested in hearing your thoughts on paying social security taxes.
February 12, 2008
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Many of us older pastors – I’m 62 – were counseled by our DOM’s to opt out when we entered the ministry. The statement you had to sign back then was different from the one now and as a young bivocational pastor I could sign it with no reservations and did.
The one fact that often gets left out of the mix is this. You’re not opting out of paying Social Security Tax nor are you opting out of receiving Social Security Benefits. You’re just opting out of the tax on money you receive from being a minister of the church. You still have to pay social security on any income you receive from other sources such as secular work or self-employment not related to ministry.
Because I had already qualified for Social Security benefits by working 40 quarters in the secular world, I will still receive Social Security when I retire even though I have not paid any tax on my ministerial income for almost 30 years.
I am not opposed to paying the tax or receiving the benefits.
Comment by Jim Shaver — February 12, 2008 @ 3:34 pm
Jim,
Would you be able to sign the statement as it stands today?
Another question, will you receive the same amount of Social Security upon retirement that you would have if you had been paying tax on your ministerial income?
Comment by trevinwax — February 12, 2008 @ 3:42 pm
Trevin,
I was ordained in Freeburg, IL in April 2006. I opted out of social security on religious grounds I think the term was. I opted out because I felt that I was able to be a better steward of the money that would otherwise be sent into the government’s program. What I did afterward was to put money toward my retirement plan through Guidestone. I think Illinois will match up to like $100 per month–I am not sure on that number, but I know they matched me.
Also, check on your paycheck. You can probably get most of it to fall under housing allowance which means it would be tax free. Basically, if you can show how much you spend a month on rent, utilities and cleaning products and such each month, you can have that money allotted as “housing allowance.” For as liberal as Illinois is (I grew up there) this is one nice perk to living there.
Hope this helps. God bless.
Comment by Terry Delaney — February 12, 2008 @ 4:02 pm
Trevin,
Hi. I am still paying into Social Security, even though I know I may never see the benefits. My reasons for not opting out were twofold: 1) I had already paid in for over ten years when I was ordained, and 2) I have a feeling that the day may come in our lifetime where guys like us may have to re-enter secular work. To be honest, the emerging church may call for more bi-vocational ministries.
It may be poor stewardship, but that’s my answer. Hope it helps.
-Andy
Comment by Andy Atkins — February 12, 2008 @ 9:35 pm
One thing I forgot to mention was that if you work bi-vocationally, you still have to pay into social security. It is my understanding that you can only opt out under the umbrella of ministerial work. So, I still pay into SS at the golf course and the tutoring I am doing down here in Louisville.
Comment by Terry Delaney — February 12, 2008 @ 10:10 pm
I would add only a few comments to what others have said very well. I received poor counsel when I had to make the decision following ordination. Thus, I failed to opt out of Social Security. It is a mistake that I regret. I am confident, given my wife’s and my frugality and money management, that we would have invested the same amount of withholdings and would have a much larger fund available to us than will be available through Social Security. We are grateful that the Lord has enabled us to develop our own investments for the future; we regret, however, that we did not make a wise and advised decision to be personally accountable for the funds that the government confiscates from each pay check.
So many, when facing the decision, fail to realize that opting out is only with reference to income derived from ministry labors, as someone above has rightly stated.
The Social Security system is immoral. It is a system of confiscation of wealth that our heirs will never inherit. My father-in-law died one month after he began to receive his social security checks. For a lifetime of paying in, he received one check, the next check had to be returned, and then the family received the standard $250.00 burial allowance. This is immoral. Thus, if anyone ever has an opportunity to opt out, one ought to do so. I would have done so, if I had received better advice.
Comment by A. B. Caneday — February 12, 2008 @ 10:37 pm
Trevin,
I am not ordained, but I do have a strictly financial opinion. If you set aside enough to fund your retirement plus a good death/disabilty insurance policy, you will likely do better in the long run by opting out. With you having a very young child, Social Security has a few dependant benefits on the front end, but you pay for them in the end, if you are lucky enough to live a long healthy life. It also depends on your method of saving and the agressivness of your saving. You need to be pretty commited to not spending the money you save, even in emergencies. If you plan to leave it in your checking account, it will probably work harder in SS. Especially with the cost of living showing no signs of stablizing. However, if you buy into some mutual funds with good track records you should accumulate enough for a comfortable retirement. Sorry about my spelling…
Comment by Biff — February 13, 2008 @ 10:44 am
Sorry, I forgot to mention health care. You need to over-estimate the cost of insurance for retirement. To get barly acceptable health insurance in retirement age today is very expensive. I have heard of premiums for a single costing as much as 1500.00 monthly and older couples $2000.00 a month is not uncommon. It depends on age and physical condition. Also, yes the benefits are on a sliding scale adjusted to contributions up to a maximum. This is a tough decision both morally and financially. Good luck
Comment by Biff — February 13, 2008 @ 11:38 am
“Few people, outside of the Amish, could plausibly say that,” said Mr. Hammar, an accountant who also has a law degree from Harvard and attended its divinity school. Richard Hammar (the leading church/tax guy)
http://www.nytimes.com/2006/10/11/business/11religious.html
I think the whole housing break, no social security is a little shady. But whatever. Somebody’s going to gain an advantage from the tax laws, might as well be clergy.
Comment by John Mark Inman — February 13, 2008 @ 2:19 pm
As a pastor, I am self-employed. Although I opted out of the social security tax after I was ordained, that only means I do not have to pay that particular tax. I still have to pay taxes. I opted out because I feel like the church should take the responsibility to care for its ministers and help them with their situation, and that ministers should not be dependent upon the government for that. I received counsel from several different people at the time, and I still think I would do it again. But they often change things in regard to this issue. And I had to jump through so many hoops that I almost gave up.
But in terms of your salary, you will still have to pay taxes, both federal and state [unless you are in a state that doesn’t require it like TN or FL]. However, you can set things up in your salary as reimbursable.
Comment by Anonymous — February 13, 2008 @ 2:20 pm
I did not opt out. I remember hearing a prof. say that there was no core religious reason to opt out, and it stuck with me. I really didn’t give it a lot of thought.
I question the decision from time to time. But not on religious grounds, pragmatic ones.
Comment by kevin b — February 13, 2008 @ 5:34 pm
I had a seminary prof encourage me to simply read that section of the tax law. When I did I found I couldn’t–conscientiously–opt out of social security. The issue is whether ministers are biblically opposed to “public insurance” (Form 4361) being funded from their salaries. It isn’t whether I think I can do a better job saving up for retirement–I can. My view of my ministerial status is that I’m no different than the folks in my congregation. So if I think “public insurance” is biblically wrong for my salary then I think it is biblically wrong for their salary. That leads me having to advise them not to pay their taxes–contra Mark 12:17 and Rom 13:6. It isn’t as easy as “Do I want to pay social security?” I think it goes deeper–at least according to the tax law–to, “Is public insurance sinful for ministers?”
Comment by Joe Holland — February 14, 2008 @ 1:23 pm
I think some considerations are twofold for younger ministers:
1. You have to conscientiously object to recieving help from the government as stated on form 4361 “I certify that I am conscientiously opposed to, or because of my religious principles I am opposed to, . . . the acceptance 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 makes payments for, medical care.” Perhaps this isn’t the statement some used to sign, but it is the one required now. It seems consientiously objectionable, practically, to say you object and opt out, but then work enough quarters to get the benefits in some other way. The statement says by conscience or belief that you are opposed to recieving the help. Period.
2. Also, understand you cannot avoid paying self-employment taxes on a portion of your income slated as housing allowance. This is excluded from income taxes, but not SE taxes nor from the calculation of your “earned income” for the earned income credit as the following makes clear, unless you opted out of SS: “Minister’s housing. The rental value of a home or a housing allowance provided to a minister as part of the minister’s pay generally is not subject to income tax but is included in net earnings from self-employment. For that reason, it is included in earned income for the EITC (unless the taxpayer has an approved Form 4361 or Form 4029)”
Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners…
It seems to be relatively clear if you read the material at http://www.irs.gov. If you do conscientiously object, more power to you and I would have no problem someone opting out. I think this is an area though, where many put practical/financial considerations above moral/conscience ones and may lose out in the long run.
Comment by P.L. Johnson — February 15, 2008 @ 9:06 am
I had opted out in 1999 on bad advice and I opted back in 2000 when the government allowed people to opt back in with no penalty. I agree with what another commenter said regarding how the statement is worded. I do not agree with the Social Security System, but at the same time, I have to be true to my conscience as well. I am not in full-time ministry currently, so it is not currently relevant for me. When I was in full-time from 1999-2002, it was a relevant topic.
Comment by tlange — February 16, 2008 @ 11:02 am