Published Jul 11, 2023
The Baptist Foundation of California agrees with the recommendation of Guidestone, the Southern Baptist retirement organization – churches should consider providing a social security offset to ministers.
Tax implications and social security requirements for ministers are often seen as confusing and difficult to navigate. Let me offer a brief explanation. Ministers are unique employees. For federal tax purposes, ministers are employees of the church, and they receive a W-2. For social security purposes, ministers are considered self-employed, and must comply with the Self Employment Contributions Act (SECA) and pay both the employer and employee portions of the Federal Insurance Contributions Act tax (FICA), which funds Social Security and Medicare. IRS Form 4361 provides instructions for ministers to file for an exemption from self-employment tax if they meet certain timely and strict requirements. The decision to apply for a social security exemption is a personal and private decision to be made with financial advisers, with wise theologians landing on both sides. I know godly ministers who have filed for exemption and godly ministers who remain in social security. Unless a minister is incredibly disciplined, both personally and financially, I would give caution to anyone considering this exemption. In addition, the IRS requires a minister to sign under penalty of perjury that they are conscientiously (or because of their religious principles) opposed to the acceptance of any public insurance or benefits for ministerial services. However, whether a minister should or should not file for an exemption using Form 4361 is beyond the scope of this discussion, and as stated earlier, is a very personal decision.
Non-ministerial employees pay half of the FICA tax, and their employer pays the other half. Ministers must pay the full amount, unless they have opted out of social security and received an approved IRS exemption from self-employment tax on ministerial earnings on Form 4361. In order to protect and provide for their families, ministers who have opted out of social security still have an obligation to provide life insurance, disability insurance, and retirement savings for themselves. Either way, ministers bear the full financial responsibility of securing these important benefits.
More churches and religious entities are recognizing this obligation and are providing a SECA or Social Security offset as additional income for ministerial employees. The SECA tax rate is currently set at 15.3% of the minister’s salary and housing allowance. The Social Security offset equals half of the SECA tax rate, or 7.65%. Guidestone and The Baptist Foundation of California both recommend churches and Baptist entities provide this additional income to ministers regardless of their social security status. When given to a minister by the church, this income must be designated as taxable income on the minister’s form W-2.
Ministers serve selflessly, often foregoing larger salaries and possibly more financially lucrative careers for the sake of the Gospel and God’s unique call on their lives. Providing this benefit is a significant way churches can bless their pastors and help them prepare for the future. While churches are required to provide half of the FICA tax for non-ministerial employees, shouldn’t they also joyously provide the same level of benefits to those called to shepherd and lead God’s people? Of course, in the current economic climate, churches will need to evaluate their own ability and timing in relation to providing this important benefit. However, we encourage churches to begin the planning process to care for their ministers in this way.