Self Employment Tax Considerations For Clergy
If you are a missionary or clergy working in another country (receiving form 1099 from a church), you may be liable for self-employment tax if your place of employment is in a country without a totalization agreement,
The income should be reported on Schedule C, Form 1040. If the minister has incurred out of pocket expenses related to this income, they should be reported as expenses on the Schedule C.
Schedule SE will need to be completed to calculate SE tax on the minister's Form W-2 wages, parsonage and utilities allowance.
This may open you up to self employment tax, which may wind up being greater than the potential social security payments you may receive in the future. This may certainly feel unfair, especially if you are up in age and are donating your time to better causes in the 3rd world - but we are not here to argue fairness, but to help explain your options.
How can you rectify this? - By filing Form 4029 or Form 4361
If you receive form 1099, you are liable for self-employment tax. The only exception to paying SE tax on these items when the minister or clergy member has filed either Form 4361 or Form 4029 which must be approved by the IRS.
You can request an exemption from self employment tax if you are a member of the clergy (minister, member of a religious order, or Christian Science practitioner or reader) or a member of a recognized religious sect.
File form 4361 to apply for an exemption from self-employment tax if you have ministerial earnings and are:
• An ordained, commissioned, or licensed minister of a church;
• A member of a religious order who has not taken a vow of poverty; or
• A Christian Science practitioner.
Form 4029 is used by members of recognized religious groups to apply for exemption from social security and Medicare taxes. File Form 4029 any time when you want to apply for exemption from social security and Medicare taxes. This is a one-time election
Prior to signing and mailing these form please carefully read the bolded small font on the form:
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I waive all rights to any social security payment or benefit under Titles II and XVIII of the Social Security Act. I understand and agree that no benefits or other payments of any kind under Titles II and XVIII of the Social Security Act will be paid based on my wages and self-employment income to any other person. I certify that I have never received benefits or payments under the above titles, nor has anyone else received these benefits based on my earnings. |
Exemptions to the exemption
If you’ve made one of several elections to be covered under Social Security - you cannot be exempt from SE tax as these elections are irrevocable. Millennials don’t need to worry, but our elder clergy need to think back - because these elections go back to the 20th century.
- If, in 1986, 1987, 2000, or 2011 - you elected to be covered under social security by filing Form 2031, Revocation of Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners.
- You elected before 1968 to be covered under social security for your ministerial services.
Conditions for exemption:
- Your religious considerations make you “conscientiously opposed” to public insurance --- (your general conscience does not apply), or you are opposed because of the principles of your religious denomination.
- You file a tax return for other than economic reasons.
- You inform the ordaining, commissioning, or licensing body of your church or order that you are opposed to public insurance if you are a minister or a member of a religious order (other than a vow-of-poverty member).
- This requirement does not apply to Christian Science practitioners or readers.
- Religious Organization requirements
- You ascertain that the organization that you are affiliated with a tax-exempt religious organization. Affiliate meaning you were ordained, commissioned, or licensed you or or your religious order
- You establish that the organization is a church or a convention or association of churches.
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The Self-Employment Tax Exemption Application and Approval Process |
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Members of the Clergy |
Members of Recognized Religious Sects |
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How |
File Form 4361 |
File Form 4029 |
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When |
File by the due date (including extensions) of your income tax return for the second tax year in which you had at least $400 of net earnings from self-employment, any of which came from ministerial services |
File anytime |
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Approval |
If approved, you will receive an approved copy of Form 4361 |
If approved, you will receive an approved copy of Form 4029 |
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Effective Date |
For all tax years after 1967 in which you have at least $400 of net earnings from self-employment, any of which came from ministerial services. |
For all tax years beginning with the first year you meet the Eligibility Requirements |