Public Insurance and Ministers
By Raul Rivera
Key Point: Many people think that if a minister "opts out" of Social Security
Section 1402 of the Internal Revenue Code allows a properly ordained minister of the gospel to apply for self-employment tax exemption. Often times, I hear ministers, CPAs, and tax professionals improperly refer to it as "opting out." It should be referred to Self Employment Tax Exemption. The term "opting out" makes it sound that one is leaving the social security system; which is not true. During one of our conferences, I spoke to a minister who had considered applying for the exemption, but chose not to because he felt he could not honestly sign the form because he believed he had to have a conscientious opposition to social security. I genuinely admired his integrity and how he stayed true to his heart, but I also wondered if his decision was based on bad advice. I replied by saying, "When the topic on ministers and social security comes up, listen to me teach then come talk to me afterwards. "
Ministers often get bad advice
When I talk to ministers about social security I repeatedly hear them tell me what their accountant or peers have told them about social security and "opting out."
The most common piece of bad advice is "if you opt out you won't get any benefits when you retire". There are too many people who believe that when someone chooses to apply for social security exemption, he/she is choosing to leave the entire social security system and will never be able to receive any retirement benefits. That is not true. "Opting Out" only applies to the income he/she earns as a minister. Any other incomes earned outside of ministry are still subject to social security tax and qualify to earn him/her retirement benefits. The fact is: You can still receive social security benefits when you "opt out".
The second piece of bad advice is "most ministers are not conscientiously opposed to socials security; therefore, most ministers do not qualify to 'opt out'." Out of context that may sound true, but is it? For example, if someone asked me "Raul, when you reach retirement age, will you be opposed to receiving social security checks?" My answer would be "Of course not." If I need social security when I reach retirement age, assuming it is still solvent, I will have no problem going to the social security office to request my benefits. After all, I have paid into the system the time and money required to be vested. However, it is a different story when it comes to the income I earned as a minister. I will explain later in step 2 below.
There are several other common pieces of bad advice that I hear often, such as "If you apply for the exemption, you may be more likely to be audited" and, finally, "The IRS is very stringent with this process and very few ministers get approved."
The 4 reasons to opt out
When the Ultimate Church Conference reached the topic on ministers and social security, I began by sharing that there is nothing better to build your confidence than knowing the facts. When someone knows all the facts, he/she is better able to make informed decisions. In essence, when I talk about the four reasons to "opt out", I really mean that there are four facts which give you reason to make an informed decision with a clear conscience to "opt out." Let me share these important facts.
1. Knowledge: The first and most important thing you need to have is knowledge of exactly what social security means. For the purposes of ministers applying to become exempt from self-employment tax, the definition of social security according to IRS form 4361 is as follows:
a. Public insurance that makes payments to you in the event of death, disability, old age, or retirement;
b. Payments toward the cost of, or to provide services for, medical care.
In reality, the self-employment tax you pay covers retirement benefits, Medicare, and Medicaid. Many folks do not know that social security and Medicaid are all part of one program. Remember this fact as I reveal the other three.
2. Conscientious: Part of applying to "opt out" with form 4361 requires you to sign a somewhat confusing statement. If you break it down, however, you will likely realize that you qualify to "opt out." Below is the statement from the form:
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, member of a religious order not under a vow of poverty, or Christian Science practitioner) 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. (Public insurance includes insurance systems established by the Social Security Act.)
Let me break down the above statement. Notice the words in bold. You can read them together without losing context. Let me put them together for you: I certify that I am conscientiously opposed to the acceptance of any public insurance that makes payments toward the cost of medical care. The reason why I chose to make those words bold is because when I said "yes" to the call of God on my life and entered full time ministry, I did not have any health insurance. In fact, I wasn't even guaranteed that the church could afford to pay me every week. On top of that, my wife was expecting our second child. Some very well intentioned members of the church encouraged me to apply for Medicaid (Title XIX of the Social Security Act of 1965). While I was grateful for their concern, in good conscience, I could not accept Medicaid so that I could remain in ministry. I felt it conflicted with my preaching and teaching that we "would be blessed in the city, and blessed in the fields . . . Blessed when you come in, and blessed when you go out." I could not sign the statement on the form with a clear conscience.
3. Religious principles: A rarely noticed provision in the statement from form 4361 is that you are opposed for religious principals. A common religious principal is simply the fact that some believe putting money into social security system is bad stewardship (parable of the talent) of what God has entrusted to them. Others say that since social security benefits are not inheritable, it runs against Pr. 13:22, which says "A good person leaves an inheritance for his children's children".
4. 2-year window: Finally, section 1402 says that a minister, once ordained, faces a timing issue. The law states that your 3361 application must be signed and submitted to the IRS on or before the due date of your 2nd personal tax return where you earned at least $400.00 in ministry as a minister. Sound tricky? It is. I explain it detail in the conference manual.
What happened to the minister at the conference?
In case it is not clear, it is my personal opinion that most ministers, when empowered with the correct information, will realize that they qualify and be able to sign the form with a clear conscience. Later that day, as we approached our 2:15 break, the minister approached me and shared "Had someone explained it to me as you did today, I would have signed and turned in my form." I was happy for him and responded, "So I guess you will do that tomorrow!" With a downcast look on his face, he said, "I still can't sign it and send it in. My two year window has expired." I said, "There is still hope." You will just have to come to one of our conferences to find out why he still had hope to extend his two year window.