Exempt religious services
The following services are generally exempt from FICA:
- by a duly ordained, commissioned, or licensed minister (qualified to exercise all ecclesiastical duties of the particular church) in the exercise of his ministry, or
- by a member of a religious order in performing duties required by such order
- in the employ of a church or qualified church-controlled organization IF the church or organization makes a qualifying election to exclude such service.
There is no specific statutory exception under FUTA for services performed by ministers, members of religious orders, or employees of church or qualified church-controlled organizations. Such services are generally exempt from FUTA, however, as services performed for exempt organizations described in § 501(c)(3).
Ministers and members of religious orders
Ministers and members of religious orders may still be subject to SECA, as are employees of a church or qualified church-controlled organization that makes an election to exclude from the FICA tax base remuneration for services performed for the organization.
Church or qualified church-controlled organization election to exclude compensation from the FICA tax base
A church (described in § § 6501(c)(3) and 170(b)(1)(A)(i)) or qualified church-controlled organization that is opposed to the payment of social security taxes for religious reasons may make an election to exclude from the FICA tax base remuneration paid for services performed for the organization. § 3121(w)
- Such an election does not apply to services performed for the organization in an unrelated trade or business.
- Employees of organizations so electing are liable for self-employment taxes with respect to the excluded service. Electing organizations remain subject to income tax withholding and reporting requirements with respect to all employees.
- A qualifying election is available only to:
- churches (including conventions and associations of churches);
- elementary or secondary schools controlled, operated, or principally supported by churches (or conventions and associations of churches); and
- church-controlled tax-exempt organizations described in § 501(c)(3), and does not include any such organization which offers goods, services, or facilities for sale to the general public (other than on an incidental basis and at a nominal charge), and which normally receives more than 25% of its support from government sources or receipts from admissions, sales of merchandise, or facilities which are not unrelated trades or businesses.
- An election to exclude services performed for a church or qualifying church-controlled organization from FICA must be made before the first date on which a quarterly employment tax return for the tax imposed under § 3111 is due and which is 90 days after the enactment of the Tax Reform Act of 1984 (July 18, 1984), and applies to all current and future employees for service performed after December 31, 1983. The election may be revoked by the IRS if the church or organization fails to furnish the reporting information required under § 6051 for a period of 2 or more years with respect to remuneration paid to the organization’s employees, and, upon request by the IRS, fails to furnish all previously unfurnished information for the period covered by the election. Any such revocation applies retroactively to the beginning of the two-year period for which the information was not furnished.
Employees who are members of a qualifying religious sect conscientiously opposed to the acceptance of public and private insurance benefits
Effective for wages paid after 1988, employees who are members of a qualifying religious sect that is conscientiously opposed to the acceptance of public and private insurance benefits may apply for exemption from FICA taxes, provided the employer has also applied for and received a similar exemption.
Members of religious orders exempt from FICA and under a vow of poverty
Members of religious orders exempt from FICA and under a vow of poverty may elect coverage by filing a certificate of election with the IRS.
Characteristics of a religious order
The IRS considers the following characteristics in determining whether an organization is a religious order (absence of one or more of the above 6 characteristics is not necessarily determinative in a particular case, but the presence of all of them would be conclusive):
- members of the organization vow to live under a strict set of rules requiring moral and spiritual self-sacrifice and dedication to the goal of the organization at the expense of their material well-being;
- members of the organization, after successful completion of the organization’s training program and probationary period, make a long-term commitment to the organization (normally more than two years);
- the organization is, directly or indirectly, under the control and supervision of a church or convention or association of churches, or is significantly funded by a church or convention or association of churches;
- members of the organization normally live together as part of a community and are held to a significantly stricter level of moral and spiritual discipline than that required of lay church members;
- members of the organization work or serve full-time on behalf of the religious, educational, or charitable goals of the organization; and
- members of the organization participate regularly in activities such as public or private prayer, religious study, teaching, care of the aging, missionary work, or church reform or renewal.
Services performed by a minister
The following rules apply in determining whether services are performed by a minister in the exercise of his ministry:
- Whether services performed by a minister constitute the conduct of religious worship or the ministration of a sacerdotal functions depends on the tenets and practices of the particular church.
- Service performed by a minister in the control, conduct and maintenance of a religious organization pertains to directing, managing, or promoting the activities of the organization.
- Service performed in the conduct of religious worship or ministration of sacerdotal functions is service in the exercise of a ministry whether or not performed for a religious organization.
- Service performed for an organization operated as an integral agency of a religious organization is performed in the exercise of a ministry if it would otherwise qualify as service performed for a ministry.
- Service performed by a minister pursuant to an assignment or designation by a religious body constituting a church qualifies as service in the exercise of a ministry whether or not performed for a religious organization or an integral agency of a religious organization.
Service which is NOT performed in the exercise of a ministry is NOT exempt from FICA. If a minister performs service for an organization which is neither a religious organization nor operated as an integral agency of a religious organization, and the service is not performed pursuant to an assignment or designation by a superior, only that service performed in the conduct of religious worship or the ministration of sacerdotal functions is performed in the exercise of a ministry.
Under no circumstances is service performed by a minister as an employee of the United States, a state, a possession of the United States, the District of Columbia, a foreign government, or any political subdivision of any of the foregoing considered to be service in the exercise of a ministry for purposes of FICA, even though such service may involve the ministration of sacerdotal functions or the conduct of worship.
Exempt service performed by a member of a religious order in the exercise of duties required by such order includes all duties required of the member by the order. Service performed outside the order is not exempt if an employer-employee relationship exists between the member and a third-party, even though required to obtain outside employment. However, a member of a religious order who is directed to perform services for an agency of a supervising church or an associated institution of the church is considered to be performing duties which are exempt from FICA regardless of the existence of an employer-employee relationship.