Some members of certain religious organizations have taken vows of poverty and are not expected to pay self-employment tax for income they receive for ministerial services. However, some ministers, such as traveling evangelists, have to file IRS Form 4361 to be considered exempt from self-employment taxes. Some ministers do this during the beginning of their ministries, when they are not receiving a large amount of income from their church. They may not be aware that these self-employment taxes also cover Social Security as well as Medicaid and Medicare taxes. Not paying into the system actually makes them ineligible for Social Security in the future.
Ministers and other religious leaders should be aware that when they file IRS Form 4361, they are basically giving up their right to collect Social Security benefits after their retirement. Certain religious orders are against the idea of this type of public insurance as well as Medicare and therefore opt out of these programs for religious reasons. For those ministers who do not file IRS Form 4361, they are still required to pay self-employment tax on services they perform such as weddings, funerals, baptisms, etc. when they earn more than $400 a year performing those rites. Those who do file should have a plan in place to save up income for later in life before they retire from their religious service.
These ministers will benefit from beginning a financial plan that includes retirement sources such as an IRA or other fund. There have been cases when ministers have been unable to retire due to a lack of financial means, meaning that they have to work much longer than expected. Filing IRS Form 4361 has many effects other than not paying taxes in the here and now, but may affect a person for years after. Ministers should contact a tax professional to make sure that they understand the total ramifications of filing to become exempt from self-employment taxes and to ask advice on the best ways to prepare for retirement.