Commissioned employees of the church fall into two categories:

1. Those who have chosen to exempt themselves from the Social Security system (“opting out”).
2. Those who choose to remain a part of the Social Security system (“participating”).

Commissioned Employees Choosing to be Exempt from Social Security (SECA):

Those who choose to be exempt must file Form 4361 with the IRS. Approved employees are exempt from paying Social Security taxes (SECA) on their salaries. SECA includes both Social Security and Medicare taxes. It is important to have in your possession an approved Form 4361. It is not sufficient to have simply made the application. Approval from the IRS will take approximately three months. Once you are approved, the IRS will refund all SECA since the date of one’s commissioning.

There is only one acceptable reason for SECA exemption. Section 7 of Form 4361 states:
I certify that I am conscientiously opposed to, or because of my religious principles I am opposed to, the acceptance (for services I performed as a minster, member of a religious order not under a vow of poverty, or a Christian Science practitioner) of any public insurance that makes payments in the event of death, disability, old age, or retirement; or that makes payments toward the cost of, or provides services for, medical care. (Public insurance includes insurance systems established by the Social Security Act.)

One very important issue concerning opting out of Social Security is the possibility that you may be forfeiting your Medicare coverage. If you have been employed (i.e., contributed to Medicare) for 40 or more quarters (10 years) prior to opting out, then you will retain Medicare coverage when you become eligible later in life. However, if you have contributed to Medicare for less than 40 quarters (10 years) AND you opt out, then you will forfeit ALL of your Medicare coverage in the future.

Commissioned Employees NOT Choosing to be Exempt from Social Security (SECA):

Those who choose to participate in Social Security simply do not file Form 4361. However, these commissioned employees are subject to paying Social Security on a SELF-EMPLOYED basis. (The IRS treats all commissioned employees as self-employed for purposes of Social Security taxes, but as employees for purposes of state and federal income taxes.) SECA is to be paid on all compensation including housing and other allowances. Commissioned employees participating in Social Security are responsible for paying their own SECA on a quarterly basis, which is reported on Form 1040ES.

Deciding Whether or Not to Opt Out:

Deciding whether or not to opt out is a personal decision. Commissioned employees have two years from the date of commissioning to decide whether or not to opt out.

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