Our ministry recently re-hired a former minister for a non-ministerial position. Because this minister had previously "opted out" of Social Security, we have a Form 4361 on file. Should we begin withholding FICA taxes, as we would for a normal employee? Or, should we continue to exclude this employee from FICA withholdings?
According to IRS Publication 517, (1) ministers are exempt from all required withholding, including FICA taxes, although they may owe self-employment taxes, and (2) only ministers performing "sacerdotal duties" are eligible for exemption from self-employment taxes by virtue of filing Form 4361. See this previous post (Ministers Employed in Parachurch Organizations) for a condensed description of sacerdotal functions.
Therefore, a minister who has previously opted out will remain subject to FICA tax withholding on non-ministerial income. Further, his non-ministerial income is ineligible for housing allowance benefits. Essentially, the ministry should ignore his Form 4361 and withhold FICA taxes as it would for a normal employee.