February 25, 2014

Minister Employed by Church in Non-ministerial Position

Question:

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?

Answer:

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.

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