Publication 517 |
2000 Tax Year |
Exemption From Self-Employment (SE) Tax
You can request an exemption from SE tax if you are one of the
following.
- A minister.
- A member of a religious order who has not taken a
vow of poverty.
- A Christian Science practitioner.
- A member of a recognized religious sect.
If you already have an approved exemption on Form 4361, you now
have a limited period of time to revoke it. See Important Changes
for 2000 on page 1.
Members of religious orders who have taken a vow of poverty are
exempt from paying SE tax, as discussed earlier under Members of
Religious Orders. They do not have to request the exemption.
Who cannot be exempt?
You cannot be exempt from SE tax if you made one of the following
elections to be covered under social security. These elections are
irrevocable.
- You elected be be covered under social security by filing
Form 2031 for your 2000 or 2001 tax year. (For more information about
this election, see Important Changes for 2000 on page 1.)
- You elected to be covered under social security by filing
Form 2031 for your 1986 or 1987 tax year.
- You elected before 1968 to be covered under social security
for your ministerial services.
Requesting exemption.
Table 2 briefly summarizes the procedure for requesting
exemption from the SE tax. More detailed explanations follow.
An approved exemption only applies to earnings you receive for
qualified services, discussed later. It does not apply to any other SE
income.
Ministers, Members of Religious Orders, and Christian Science
Practitioners
To claim the exemption from SE tax, you must meet all of the
following conditions.
- You file Form 4361, described later under Requesting
exemption -- Form 4361.
- You are conscientiously opposed to public insurance because
of your individual religious considerations (not because of your
general conscience), or you are opposed because of the principles of
your religious denomination.
- You file for other than economic reasons.
- You inform the ordaining, commissioning, or licensing body
of your church or order that you are opposed to public insurance if
you are a minister or a member of a religious order (other than a
vow-of-poverty member). This requirement does not apply to
Christian Science practitioners.
- You establish that the organization that ordained,
commissioned, or licensed you, or your religious order, is a
tax-exempt religious organization.
- You establish that the organization is a church or a
convention or association of churches.
- You did not make an election discussed earlier under
Who cannot be exempt?
- You sign and return the statement the IRS mails to you to
certify that you are requesting an exemption based on the grounds
listed on the statement.
Requesting exemption -- Form 4361.
To request exemption from SE tax, file Form 4361 in triplicate
(original and two copies) with the IRS.
The IRS will return to you a copy of the Form 4361 that you filed
indicating whether your exemption has been approved. If it is
approved, keep the approved copy in your permanent records.
When to file.
File Form 4361 by the date your income tax return is due, including
extensions, for the second tax year in which you have net earnings
from self-employment of at least $400. This rule applies if any part
of your net earnings for each of the two years came from your services
as a:
- Minister,
- Member of a religious order, or
- Christian Science practitioner.
The two years do not have to be consecutive tax years.
Because the approval process can take some time, you should file
Form 4361 as soon as possible.
Example 1.
Rev. Lawrence Jaeger, a clergyman ordained in 2000, has net
earnings of $450 in 2000 and $500 in 2001. He must file his
application for exemption by the due date, including extensions, for
his 2001 income tax return. However, if Rev. Jaeger does not receive
IRS approval for an exemption by April 15, 2002, his SE tax for 2001
is due by that date.
Example 2.
Rev. Louise Wolfe has $300 in net earnings as a minister in 2000,
but earned more than $400 in both 1999 and 2001. She must file her
application for exemption by the due date, including extensions, for
her 2001 income tax return. However, if she does not receive IRS
approval for an exemption by April 15, 2002, her SE tax for 2001 is
due by that date.
Example 3.
In 1998, Rev. David Moss was ordained a minister and had $700 in
net earnings as a minister. In 1999, he received $1,000 as a minister,
but his related expenses were over $1,000. Therefore, he had no net
earnings as a minister in 1999. Also in 1999, he opened a book store
and had $8,000 in net self-employment earnings from the store. In
2000, he had net earnings of $1,500 as a minister and $10,000 net SE
earnings from the store.
Because Rev. Moss had net earnings from self-employment in 1998 and
2000 that were $400 or more each year, and part of the earnings in
each of those years was for his services as a minister, he must file
his application for exemption by the due date, including extensions,
for his 2000 income tax return.
Death of individual.
The right to file an application for exemption ends with an
individual's death. A surviving spouse, executor, or administrator
cannot file an exemption application for a deceased clergy member.
Effective date of exemption.
An approved exemption is effective for all tax years after 1967 in
which you have $400 or more of net earnings from self-employment and
any part of the earnings is for services as a member of the clergy.
Once the exemption is approved, it is irrevocable.
Example.
Rev. Trudy Austin, ordained in 1999, had $400 or more in net
earnings as a minister in both 1999 and 2000. She files an application
for exemption on February 15, 2001. If an exemption is granted, it is
effective for 1999 and the following years.
Refunds of SE tax.
If, after receiving an approved Form 4361, you find that you
overpaid SE tax, you can file a claim for refund on Form 1040X before
the period of limitations ends. This is generally within 3 years from
the date you filed the return or within 2 years from the date you paid
the tax, whichever is later. A return you filed, or tax you paid,
before the due date is considered to have been filed or paid on the
due date.
If you file a claim after the 3-year period but within 2 years from
the time you paid the tax, the credit or refund will not be more than
the tax you paid within the 2 years immediately before you file the
claim.
Members of Recognized Religious Sects
If you are a member of a recognized religious sect, or a division
of a recognized religious sect, you can apply for an exemption from
payment of social security and Medicare taxes.
Exception.
If you received social security benefits or payments, or anyone
else received these benefits or payments based on your wages or SE
income, you cannot apply. However, if you pay your benefits back, you
may be considered for exemption. Contact your local Social Security
office to find out the amount to be paid back.
Eligibility requirements.
To claim this exemption from SE tax, all the following
requirements must be met.
- You must file Form 4029, discussed later under
Requesting exemption -- Form 4029.
- As a follower of the established teachings of the sect or
division, you must be conscientiously opposed to accepting benefits of
any private or public insurance that makes payments for death,
disability, old age, retirement, or medical care, or provides services
for medical care.
- You must waive all rights to receive any social security
payment or benefit and agree that no benefits or payments will be made
to anyone else based on your wages and SE income.
- The Commissioner of Social Security must determine that:
- Your sect or division has the established teachings as in
(2) above,
- It is the practice, and has been for a substantial period of
time, for members of the sect or division to provide for their
dependent members in a manner that is reasonable in view of the
members' general level of living, and
- The sect or division has existed at all times since December
31, 1950.
If you have previously received approval for exemption from SE tax,
you are considered to have met the requirements and do not need to
apply for this exemption.
Requesting exemption -- Form 4029.
To request the exemption, file Form 4029 in triplicate with the
Social Security Administration at the address shown on the form. The
sect or division must complete part of the form.
The IRS will return to you a copy of the Form 4029 that you filed
indicating whether your exemption has been approved. If it is
approved, keep the approved copy in your permanent records.
When to file.
You can file Form 4029 at any time.
Effective date of exemption.
An approved exemption generally is effective on the first day of
the first quarter after the quarter in which Form 4029 is filed. It
does not apply to any tax year beginning before you meet the
eligibility requirements discussed earlier.
The exemption will end if you fail to meet the eligibility
requirements or if the Commissioner of Social Security determines that
the sect or division fails to meet them. You must notify the IRS
within 60 days if you are no longer a member of the religious group,
or if you no longer follow the established teachings of this group.
The exemption will end on the date you notify the IRS.
Refunds of SE tax paid.
For information on requesting refunds, see Ministers, Members
of Religious Orders, and Christian Science Practitioners,
earlier.
Exemption From FICA Taxes
Generally, under FICA, the employer and the employee each pay half
of the social security and Medicare tax. Both the employee and the
employer, if they meet the eligibility requirements discussed earlier,
can apply to be exempt from their share of FICA taxes on wages paid by
the employer to the employee.
If the employer's application is approved, the exemption will apply
only to FICA taxes on wages paid to employees who also received an
approval of identical applications.
Information for employers.
If you have an approved Form 4029 and you have an employee who has
an approved Form 4029, do not report wages you paid to the employee as
social security and Medicare wages.
A partnership in which each partner holds a religious exemption
from social security and Medicare is an employer for this purpose.
Form W-2.
When preparing a Form W-2 for an employee with an approved
Form 4029, write "Form 4029" in the box marked "Other." Do
not make any entries in box 3, 4, 5, or 6.
Forms 941 and 943.
Do not include these exempt wages on Form 941, Employer's
Quarterly Federal Tax Return, or on Form 943, Employer's
Annual Tax Return for Agricultural Employees, if you have
received an approved Form 4029.
On Form 941, write "Form 4029" to the left of the entry spaces
on the lines for "Taxable social security wages,""Taxable
social security tips," and "Taxable Medicare wages and tips."
Check the box on line 8 to show that the wages are not subject to
these taxes.
On Form 943, write "Form 4029" to the left of the entry spaces
on the lines for "Total wages subject to social security taxes,"
and "Total wages subject to Medicare taxes."
If you have employees who do not have an approved Form 4029, you
must withhold the employee's share of social security and Medicare
taxes and pay the employer's share.
Effective date.
An approved exemption from FICA becomes effective on the first day
of the first calendar quarter after the quarter in which Form 4029 is
filed. The exemption will end on the last day of the calendar quarter
before the quarter in which the employer, employee, sect, or division
fails to meet the requirements.
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