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Changes in Social Security for 2005 Announced

Basically, churches are exempt from all payroll tax withholding on ministry income. However, churches are subject to payroll tax withholding requirements for its non minister employees. On the other hand, ministers must pay a self employment social security tax. There are no exemptions to this social security process for ministers. Social Security legislation has these two parts - SECA (Self-Employment Contribution Act) for self-employment income and FICA (Federal Insurance Contribution Act) for employee wages. A minister, in regard to "service performed in the exercise of his ministry," is subject to SECA. A minister and his or her ministry employer are exempt from FICA. The laws are clear and specific. Withholding FICA and Medicare tax from a minister's pay indicates a non-minister status and could invalidate the minister's clergy housing allowance exclusion.

Even though you are considered a self-employed individual in performing your ministerial services for social security purposes, you may be considered an employee for income tax or retirement plan purposes. Some of your income may be considered self-employment income and other income may be considered wages.

The Social Security wage base for 2005 is $90,000 up from $87,900 in 2004. Ministers of the church earn one social security credit for each $920 in earnings up to a maximum of four credits for the year. Social security will deduct $1 in benefits for each $3 earned above $31,800 until the month the minister turns sixty-five and six months if he has reached full retirement during 2005. A minister can also opt to get social security retirement or survivors benefits and work at the same time. His benefits could, however, be reduced if he is not at full retirement age and earns more than $12,000 in 2005.

If, however, a minister opts not to receive social security benefits right away when he reaches full retirement age, he could get a higher benefit later and an increase in the benefit amounts for their families and survivors. Ministers who receive retirement benefits but continue their service in the ministry will have to pay SECA taxes on the part of their retirement benefits designated as housing.

In addition, the law does not allow a minister to claim exemption from the payment of the self-employment form of Social Security tax on his or her ministry income solely for economic considerations. Further, ministers are not allowed to opt out of Social Security just because they think it is a bad investment.

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