Finance Fridays: Social Security and Pastors

The Dime Blog has had some great information on it lately.  Today’s post is on the social security exemption for pastors and the particulars behind it:

Commissioned employees (pastors) of the church fall into two categories:

  1. Those who have chosen to exempt themselves from the Social Security system (“opting out”).
  2. Those who choose to remain a part of the Social Security system (“participating”).

Commissioned Employees Choosing to be Exempt from Social Security (SECA):

Those who choose to be exempt must file Form 4361 with the IRS. Approved employees are exempt from paying Social Security taxes (SECA) on their salaries. SECA includes both Social Security and Medicare taxes. It is important to have in your possession an approved Form 4361. It is not sufficient to have simply made the application. Approval from the IRS will take approximately three months. Once you are approved, the IRS will refund all SECA since the date of one’s commissioning.

There is only one acceptable reason for SECA exemption. Section 7 of Form 4361 states: 
I certify that I am conscientiously opposed to, or because of my religious principles I am opposed to, the acceptance (for services I performed as a minster, member of a religious order not under a vow of poverty, or a 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.)

One very important issue concerning opting out is the possibility that you may be forfeiting your Medicare coverage. If you have been employed (i.e., contributed to Medicare) for 40 or more quarters (10 years) prior to opting out, then you will retain Medicare coverage when you become eligible later in life. However, if you have contributed to Medicare for less than 40 quarters (10 years) AND you opt out, then you will forfeit ALL of your Medicare coverage in the future.

Commissioned Employees NOT Choosing to be Exempt from Social Security (SECA):

Those who choose to participate in Social Security simply do not file Form 4361. However, these commissioned employees are subject to paying Social Security on a SELF-EMPLOYED basis. (The IRS treats all commissioned employees as self-employed for purposes of Social Security taxes, but as employees for purposes of state and federal income taxes.) SECA is to be paid on all compensation including housing and other allowances. Commissioned employees participating in Social Security are responsible for paying their own SECA on a quarterly basis, which is reported on Form 1040ES.

Deciding Whether or Not to Opt Out:

Deciding whether or not to opt out is a personal decision. Commissioned employees have two years from the date of commissioning to decide whether or not to opt out.

Whittney has done a great job of walking through the rules and requirements surrounding the Social Security exemption.  I would like to touch on the thought process behind opting out.  I personally have not opted out.  As I read the requirements I can not say with a clear conscience that my faith in Christ precludes me from taking advantage of Social Security or Medicare.  Do I have political issues with these programs?  Absolutely, but my political leanings do not allow me to exempt myself.

Dave Ramsey often encourages pastors to opt out for financial reasons.  I would love to be able to do this, and I have tried to do the mental gymnastics that would allow me to opt out, but the more I soaked and prayed through it, the more that I realized that my faith was not what would be driving this decision.

How have YOU wrestled through and decided on the Social Security Exemption?


About the Author: Matt Steen

I love Jesus, Theresa (my wife), the Redskins & Capitals, and am currently living in Waco, Texas where I am studying the finer points of BBQ (while working on my MDiv and MBA at Baylor University). When not studying, I serve church leaders through and am the Director of Connections for Harris Creek Baptist Church's Downtown Campus.

  • Dwight Kreiser

    Matt – very good article. I agree with your conclusion and I believe if most pastors thought through the validity of opting out they would not be able to ethically do that. However, I also believe there are a lot of pastors that have been given improper advice on this issue.

    A few additional questions: This election is also irreversible isn’t it? As long as a pastor is in ministry they would be exempt? However, if they move out of ministry they would no longer be exempt? I would think the loss of medicare coverage could present a significant issue later in life, but could a pastor pick up a part-time job at some point to get the benefits or would they potentially be eligible for coverage through their spouse?

    • Matt Steen

      Hey Dwight!

      Thanks for coming by! Best I can tell the election is semi-irreversible. By that I mean that there have been times where pastors have had the opportunity to opt back in (2003 I believe was the last time) but this is pretty infrequent and should not be expected to happen again.

      I would agree with you that there is a great deal of misinformation out there about this, Dave Ramsey is one of the bigger names who encourage the opt out, and I have significant issues with how he goes about doing it… and I am generally a big Dave Ramsey fan.

      You are at LCBC, right? Say hi to Jason Mitchell for me!

  • Ben Habeck

    One of my biggest fears in pastors opting out is that they won’t have sufficient coverage if something catastrophic happened. In other words, Social Security and Medicare provide a benefit that would HAVE to be self-funded. Pastors have to understand that the “insurance” needs to be in place or they’re going to be in a world of hurt if something happens. Yet another way pastors are sometimes mis-advised.

  • Aaron

    As a very young pastor (circa 1996) I opted out per the recommendation of others, and with the mindset I would be in church ministry for a long time and would probably never need it personally anyway because I intended to save more $.
    Around 2004 I realized a few key things:

    1. I wasn’t that great at saving $ for retirement. I know SS isn’t just for that and might be depleted anyway, but it’s a possible help.
    2. With much more thought and a few years of maturity under my belt, I was no longer so opposed to SS and wished to opt back in. Despite it’s failures, it helps a lot of people in many ways even if I am anti-big-government. However it was not an option at that point and I would have to wait (I’m still waiting).
    3. I needed to opt back in at some point anyway, particularly since I was possibly headed in a para-church route career wise and you can’t “not” pay SS if you aren’t formally working for a church.

    Here I am several years later…technically still a Pastor…but not as far as the IRS is concerned. I have worked for a para-church organization for 5 years. I have been required to pay into SS since 2006…yet I still can’t get back in to the fold of being eligible for SS in my future. That is 5 years worth of paying into something that benefits others (which I’m fine with), but as it stands now, it can never benefit me or my beneficiaries (not so happy about that part).

    So…it’s my fault. I signed the piece of paper all those years ago. However, I yearly ask my H&R Block tax person if I can get back in to SS.
    Yet she yearly says, “not until something changes.”
    Wondering when that potential change will be.

  • Jared Berry

    Thank you for your article.  I do agree that it is really hard to find a biblical precedent for opting out.  Granted many brothers have made this decision in ignorance.  I have been in the process of deciding after my ordination last September.  I’ve concluded that I cannot make the decision to opt out based on religious (biblical) convictions.  Although I have a truck load of political and rational reasons.  One article the clarified the choice for me was this one I found from Crown Financial Ministries.  That was thought out well ethically and biblically. I have no choice but to remain in Social Security.  

    • Matt Steen

      That is a great article, thanks for pointing us to it, Jared!

  • Nancy

    Ok, we were some of those “misinformed” ones that opted out of SS in the 70’s. We are now 65 and, I guess, can’t get Medicare because of it. We have no insurance at all. What is the best route to go to get decent insurance at this age?