January 09, 2010

Time Limits on Refund SE Tax After Exemption Gained

Question:

Does the IRS have time limits between when a minister was licensed and when he can begin applying an IRS-approved exemption from self-employment tax?

Answer:

The instructions to Form 4361, Application for Exemption from SE Tax for Use by Ministers, state the following:

"When to file. File Form 4361 by the due date, including extensions, of your tax return for the 2nd tax year in which you had at least $400 of net earnings from self-employment, any of which came from services performed as a minister, member of a religious order, or Christian Science practitioner."

It continues:

"Effective date of exemption. An exemption from self-employment tax is effective for all tax years ending after 1967 in which you have net self-employment earnings of $400 or more, if you receive any of it from ministerial services."

Be advised that, generally, you have until three years from the due date of a return to file an amendment (IRS Form 1040X) to receive a refund. For example, an individual earns $5,000 as a newly licensed minister in 2006 and, then, goes full-time in 2009, earning $50,000. He has until the due date, plus extensions, of his 2009 return to apply for exemption using Form 4361. However, the due date of his 2006 return was April 15, 2007. He has until April 15, 2010, to file for a refund of the SE tax that he paid on the $5,000 of ministerial earnings in 2006.

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