Dual-status rules
Ordained, commissioned, or licensed ministers are employees for income tax purposes but self-employed for Social Security purposes. That means W-2 income tax withholding typically, but SECA (not FICA) on ministerial income. It's confusing and it trips up generic preparers every year.
Housing allowance
A properly designated housing allowance is excluded from income tax (though included in SECA). The allowance must be designated in advance by the church's governing body and can't exceed the fair rental value of the home plus utilities. Documentation matters.
Opting out of Social Security
Ministers can file Form 4361 to exempt themselves from Social Security on ministerial earnings based on religious objection. The decision is irrevocable and has long-term consequences. We walk through it carefully before filing.
Common questions
- Is housing allowance really tax-free?
- It's excluded from federal income tax up to the lesser of: the designated amount, the actual housing expenses, or the fair rental value of the home plus utilities. SECA still applies to the full amount.
- Should I opt out of Social Security?
- Almost always no, even though many ministers consider it. The long-term loss of retirement, disability, and survivor benefits typically outweighs the near-term SECA savings. We document the decision either way.