Ministers MUST pay into Social Security
Blog by Donald P. Shoemaker
In 1985 I proposed to the Conference of my denomination (The Fellowship of Grace Brethren Churches) that a study committee be appointed to develop a strong, contemporary retirement program for our ministers. The proposal passed, and I became one of the committee members.
My task at one point was to analyze a survey we sent to our ministers. I divided the responses into three age categories (below 40, 40-55, above 55).
I found that most of the pastors in the 55+ group were participants in the Social Security program (NOTE: for many years participation in Social Security was OPTIONAL [opt-in] for clergy—not so in recent decades).
Surprisingly, I found that most of the pastors below age 40 had opted out of Social Security. Furthermore, most of these opt-outers had not created any kind of a substitute plan for funding their retirements.
Maybe Jesus will return first!
Here are some plain facts:
- Ministers are regarded as SELF-EMPLOYED by the IRS when it comes to paying into social security (Self-employment Tax). This means they must pay twice what employees pay into the program (15.3% instead of 7.65%). Many church boards may not be aware of this burden on their pastors. An enlightened church board would reimburse pastors for at least half of this tax.
- By law, ministers MUST participate in the Social Security program, except in very narrow circumstances. To be specific, only by conscientiously signing and submitting Form 4361 to the IRS may a minister “opt out” of paying into this system.
- What does Form 4361 require? The minister must declare:
“I certify that I am conscientiously opposed to, or because of my 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…”
Read that again, carefully. In addition, Form 4361 requires that the minister has previously communicated this conviction to the ordaining body of his church. Finally, under penalties of perjury, the applicant declares, “I have examined this application and to the best of my knowledge and belief, it is true and correct.”
- Many clergy have opted out of Social Security not from religious convictions, but simply because (a) they didn’t want to pay it and/or (b) they thought they could benefit more by investing this amount elsewhere. Seminaries may even have facilitated this thinking.
- Many clergy therefore lied, or at the least got bad advice, didn’t check it out on their own, and didn’t read Form 4361 before signing it. In fact, a tax guide for ministers came out several years ago that actually advised them, if questioned by the IRS, NOT to say they opted out for financial reasons, but because of their church’s doctrines. This was simply not true in a vast number of cases.
- My assessment of clergy responses when I served on the retirement study committee is that many had not invested in an alternate, comparable retirement program. Thus, they will find themselves coming up short when the desire or need to retire comes.
- If a minister lives in church-owned housing his retirement prospects may be even worse. Unless he has prepared for his retirement housing, he will find himself with no parsonage and with no equity.
One of the best words of advice I ever received is when the board of my first congregation as a senior pastor advised me to stay in the Social Security program when I could have opted out (in those days, without declaring an “objection of conscience”). They sweetened that advice by paying my social security taxes. I now am beneficiary of that wisdom.