U.S. Citizens and Resident and Nonresident Aliens

To be covered under the SE tax provisions (SECA), individuals generally must be citizens or resident aliens of the United States. Nonresident aliens are not covered under SECA.

To determine your alien status, see Publication 519, U.S. Tax Guide for Aliens.

Residents of Puerto Rico, the Virgin Islands, Guam, the CNMI, and American Samoa.   Residents of Puerto Rico, the Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, and American Samoa, who are not U.S. citizens, are treated the same as citizens or resident aliens of the United States for SE tax purposes. For information on figuring the tax, see Figuring Net Earnings From Self-Employment for SE Tax, later.

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.

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 to be covered under social security by filing Form 2031 for your 1986, 1987, 2000, or 2001 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.

The approval process can take some time, so you should file Form 4361 as soon as possible.

Example 1.   Rev. Lawrence Jaeger, a clergyman ordained in 2002, has net earnings of $450 in 2002 and $500 in 2003. He must file his application for exemption by the due date, including extensions, for his 2003 income tax return. However, if Rev. Jaeger does not receive IRS approval for an exemption by April 15, 2004, his SE tax for 2003 is due by that date.

Example 2.   Rev. Louise Wolfe has $300 in net earnings as a minister in 2002, but earned more than $400 in both 2001 and 2003. She must file her application for exemption by the due date, including extensions, for her 2003 income tax return. However, if she does not receive IRS approval for an exemption by April 15, 2004, her SE tax for 2003 is due by that date.

Example 3.   In 2000, Rev. David Moss was ordained a minister and had $700 in net earnings as a minister. In 2001, 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 2001. Also in 2001, he opened a book store and had $8,000 in net self-employment earnings from the store. In 2002, he had net earnings of $1,500 as a minister and $10,000 net SE earnings from the store.

Rev. Moss had net earnings from self-employment in 2000 and 2002 that were $400 or more each year, and part of the earnings in each of those years was for his services as a minister, so he must file his application for exemption by the due date, including extensions, for his 2002 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 2001, had $400 or more in net earnings as a minister in both 2001 and 2002. She files an application for exemption on February 18, 2003. If an exemption is granted, it is effective for 2001 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.

1. You must file Form 4029, discussed later under Requesting exemption - Form 4029.
2. 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.
3. 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.
4. The Commissioner of Social Security must determine that:
   1. Your sect or division has the established teachings as in (2) above,
   2. 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
   3. 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.

A partnership in which each partner holds a religious exemption from social security and Medicare is an employer for this purpose.

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.

If you have an employee who does 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.

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 tax, and Total wages subject to Medicare tax.

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.

Qualified Services

Qualified services, in general, are the services you perform in the exercise of your ministry or in the exercise of your duties as required by your religious order. Income you receive for performing qualified services is subject to SE tax unless you have an exemption as explained earlier. If you have an exemption, only the income you receive for performing qualified services is exempt. The exemption does not apply to any other SE income.

The following discussions provide more detailed information on qualified services of ministers, and members of religious orders, and Christian Science practitioners and readers.

Ministers

Most services you perform as a minister, priest, rabbi, etc., are qualified services. These services include:

• Performing sacerdotal functions,
• Conducting religious worship, and
• Controlling, conducting, and maintaining religious organizations, boards, societies, and other integral agencies that are under the authority of a religious body that is a church or denomination.

You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities.

A religious organization is under the authority of a religious body that is a church or denomination if it is organized for and dedicated to carrying out the principles of a faith according to the requirements governing the creation of institutions of the faith.

Services for nonreligious organizations.   Your services for a nonreligious organization are qualified services if the services are assigned or designated by your church. Assigned or designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship.

If your services are not assigned or designated by your church, they are qualified services only if they involve performing sacerdotal functions or conducting religious worship.

Services that are not part of your ministry.   Income from services that are not qualified services is generally subject to social security tax withholding (not self-employment tax) under the rules that apply to workers in general. The following are not qualified services.

• Services you perform for nonreligious organizations other than the services stated earlier.
• Services you perform as a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, the District of Columbia, a foreign government, or any of their political subdivisions. This is true even if you are performing sacerdotal functions or conducting religious worship. (For example, if you perform services as a chaplain in the Armed Forces of the United States, the services are not qualified services.)
• Services you perform in a government-owned and operated hospital. (These services are considered performed by a government employee, not by a minister as part of the ministry.) However, services that you perform at a church-related hospital or health and welfare institution, or a private nonprofit hospital, are considered to be part of the ministry and are considered qualified services.

Books or articles.   Writing religious books or articles is considered to be in the exercise of your ministry and is considered qualified services.

This rule also applies to members of religious orders and to Christian Science practitioners.

Members of Religious Orders

Services you perform as a member of a religious order in the exercise of duties required by the order are qualified services. The services are qualified because you perform them as an agent of the order.

For example, if you are directed to perform services for another agency of the supervising church or an associated institution, you are considered to perform the services as an agent of the order.

However, if you are directed to work outside the order, the employment will not be considered a duty required by the order unless:

• Your services are the kind that are ordinarily performed by members of the order, and
• Your services are part of the duties that must be exercised for, or on behalf of, the religious order as its agent.

Effect of employee status.   Ordinarily, if your services are not considered directed or required of you by the order, you and the outside party for whom you work are considered employee and employer. In this case, your earnings from the services are taxed under the rules that apply to workers in general, not under the rules for services provided as agent for the order. This is true even if you have taken a vow of poverty.

Example.   Mark Brown and Elizabeth Green are members of a religious order and have taken vows of poverty. They renounce all claims to their earnings. The earnings belong to the order.

Mark is a licensed attorney. The superiors of the order instructed him to get a job with a law firm. Mark joined a law firm as an employee and, as he requested, the firm made the salary payments directly to the order.

Elizabeth is a secretary. The superiors of the order instructed her to accept a job with the business office of the church that supervises the order. Elizabeth took the job and gave all her earnings to the order.

Mark's services are not duties required by the order. His earnings are subject to social security and Medicare tax under FICA and Federal income tax.

Elizabeth's services are considered duties required by the order. She is acting as an agent of the order and not as an employee of a third party. She does not include the earnings in gross income, and they are not subject to income tax withholding, social security and Medicare tax, or SE tax.

Christian Science Practitioners and Readers

The exemption from SE tax, discussed earlier, applies only to the services a Christian Science practitioner or reader performs in the exercise of his or her profession. If you do not have an exemption, amounts you receive for performing these qualified services are subject to SE tax.

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