January 29, 2009

Timing for Opting Out of Social Security

Question:

A minister was ordained in 2007, but had no income until 2008. Must the minister wait for two years until tax time for 2009 (before April 15, 2010) to apply for exemption from social security?

Answer:

The application can be filed immediately, but must be filed before a minister's first two years of ministry expire. Years when less than $400 is earned are excluded from the time limit calculation. Form 4361--Application for Exemption From Self-Employment Tax for Use By Ministers--requires disclosure of the first two years of ministry income. One who waits until the final year should file an amended return to receive a refund of self-employment tax paid in year one.

Ministers who anticipate filing for exemption may forego making estimated tax payments of the standard SE tax, but run the risk of failing to receive exemption approval and, then, owing a large tax plus penalties for underpayment of estimated tax.

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