Skip to main content

Opt Out of Social Security Denied

Question:

A minister filed IRS Form 4361 but never received written confirmation of its acceptance. Later, the IRS audited his return and assessed the unpaid self-employment tax. What can he do now?

Answer:

According to the Minister Audit Technique Guide, a guide prepared by the IRS for its auditors but available to the public through the above link,

"To determine if a minister is exempt from self-employment tax, request that he or she furnish a copy of the approved Form 4361 if it is not attached to the return. If the taxpayer cannot provide a copy, order a transcript for the year under examination. The ADP and IDRS Information handbook shows where the ministers' self-employment exemption codes are located on the transcripts and what the codes mean. Transcripts will not show exemption status prior to 1988.

"If the transcript does not show a MIN SE indicator and the taxpayer still claims that he or she is exempt from self-employment tax, the Taxpayer Relations Branch at the Service Center where the Form 4361 was filed can research this information and provide the taxpayer with a copy. The Social Security Administration in Baltimore also can provide the information on exemption for an individual."

The normal procedure for filing Form 4361 is (abridged):
1. minister files Form 4361 in triplicate (several attachments are also required)
2. the IRS communicates with the minister for written confirmation of his conscientious objection (other information may also be requested)
3. an IRS representative returns a signed original to the minister
4. the minister runs a photocopy and gives one to his tax preparer :^)

Since it is now likely that his two-year window of opportunity to opt out is expired, absent this proof (i.e., an IRS-signed Form 4361), the minister has few options other than to pursue the advice above.

Comments

Popular posts from this blog

Church Car Purchase for Pastor

Question: A church would like to purchase a car for the pastor's use. What is the best method to accomplish this goal? Should the car be titled in the pastor's name? What will be the tax consequences of this arrangement? Answer: The church has two main alternatives for this purchase:  Title the car in the pastor's name and reimburse him for business expenses Title it in the church's name and treat personal use as taxable compensation There are fewer immediate tax consequences for the latter. Since both are viable options, we will discuss both situations in this post. If the church chooses to give the car to the pastor and register it in his name, he is free to use it for whatever personal use he desires with no tax consequences. However, the fair value of the car is taxable as compensation at the time it is given to the pastor. Internal Revenue Code section 102(c) clearly states that gifts given to employees by their employers are taxable compensation. The...

Can Form 4361 be filed after the deadline?

Question:   Is it possible to opt out of Social Security after the 2-year deadline? Answer:  Unlike other employees, a licensed or ordained minister has the option to opt out of Social Security and Medicare (FICA). If a minister wants to opt out they must file Form 4361 by the tax deadline including extension, in the second year in which they have received ministerial income of $400 or more. This election is final, and the minister cannot opt back into FICA taxes.  At MinistryCPA, we have received questions from ministers who have exceeded the two year deadline and desire to opt-out. There have been several court cases which provide guidance in answering this question. Some have argued that the minister was unaware of the deadline, had mistakenly believed they had filed a timely election, were given incorrect advice by an IRS employee, or their opposition to participate in Social Security and Medicare did not arise until after the 2-year deadline had passed. In each of th...

Form 941 or 944 - Which Should a Church Use for Payroll Reporting?

Question:   Are churches required to file a Form 944 annually to report their employees' earnings and tax-withholdings? A quarterly Form 941 (rather than an annual Form 944) is required of some employers. Which IRS form, if any, should be filed? Answer: According to IRS Section 1402(c) and 3121(c), ministers are not subject to mandatory income tax withholding. Unless one or more ministerial employees request non-mandatory withholding, church employers with only ministerial employees do not need to file Form 941 or Form 944.  The IRS  Ministers Audit Techniques Guide  explains in further detail a minister's treatments for Social Security, Medicare tax, and income tax withholding.   Form 941 or 944 must be filed when non-ministerial employees are compensated or when ministers request withholding. When can a church file the annual Form 944 rather than filing Form 941 each quarter? The IRS may permit the annual filing of Form 944 for employers wh...