Social Security?
Should you opt out of Social Security?
When I first started in full-time ministry I was shocked by two things. First, I was shocked by the bill for paying all 15.3% of the Self-Employment tax. Second, I was shocked by the fact that I had the option to opt out of social security for my ministry income.
Most employees who work for an employer and get a W-2 every year participate in Social Security. They have 7.65% of their wages deducted from their paycheck and their employer adds in 7.65% also for a total of 15.3%. The employer sends in the total to the IRS. Most ordained ministers are considered self-employed and their employer treats them as such. As a result, the minister pays all 15.3%. This includes housing allowance and the rental value of your parsonage if the church provides you one.
Now let’s talk about opting out. You have to meet several tests to opt out of social security.
You must be licensed or ordained and be paid to perform sacerdotal duties.
You must opt out because you have philosophical issues with participating in a government-run social insurance program; you cannot simply opt-out because you don’t want to pay the taxes.
You must choose to opt-out in the first two years after you are licensed or ordained.
I know a minister who was licensed while in college and did ministry for several years as a licensed minister. He was ordained in his mid-30s and chose to opt out at that point. As far I can tell, either one of those events creates a two year window where you have the option to opt out. As for me, I was never licensed. I was ordained and that same year I began working full-time in ministry. I had to think and pray long and hard to make sure I had philosophical issues with Social Security. Here’s where I landed: I believe in the separation of Church and State. I believe that if I am to serve the Church, the Church has a responsibility to look after my physical needs. Therefore, I chose not to be dependent on a government-run social insurance program.
So, if you are in your time window AND you have a conscientious objection to participating in a government-run social insurance program, you have the option to opt out of Social Security.
But should you?
Top reasons to opt out of Social Security:
You have philosophical issues with participating in a government-run social insurance program (required).
You are in the first two years after becoming licensed or ordained (required).
You are a disciplined saver and you know you will save 15.3% or more of your income for retirement.
You already have 40 quarters of coverage. (Basically, this means you worked for 10 years before you opt out of social security.) Earning 40 quarters of coverage is most important because it entitles you to Medicare at age 65. Medicare benefits are worth about $82,000 in 2015 dollars.
You have another source of ongoing income that you pay social security taxes on. You may be bivocational or you have a side gig that has substantial income. In 2020, income of $1,410 earns a quarter of coverage. It doesn’t matter when in the year you earn income. If you earn between $1,410 and $2,818, you get one quarter. If you earn at least $5,650 ($1,410x4) for the year, you earn the maximum four quarters.
Top Reasons Not to Opt Out of Social Security
You have no problem with a government run social insurance program for religious leaders. STOP: you cannot opt-out.
You are past two years since you were ordained or licensed. Technically, your deadline is your timely filing of your personal tax return for the year that includes your two year ordination anniversary.
You aren’t a disciplined saver and you’ll spend the difference.
You sow all your excess back into your church and never save for the future.
You give away, spend away or otherwise “away” money that you save.
You have very young children and you know you need the survivor’s benefits social security provides.
You have no way to earn quarters of coverage by earning income outside of ministry.