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If you’ve visited any major news site recently, you’ve probably seen it. No, not that. Scroll past the political mumbo jumbo and you’ll find a topic slightly more depressing: Social Security.
In 2011, Congress temporarily reduced the Social Security payroll tax from 6.2% to 4.2%, which meant extra money in the pockets of the American people and, ultimately, the marketplace. It was designed to help spur on the economy.
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That tax cut expired on December 31, 2012. The change back to a 6.2% Social Security payroll tax rate took place immediately. If your most recent paycheck seemed lacking, that’s why.
In short: Your salary just got cut by 2%.
Fortunately, as a pastor, you are in a unique situation to avoid this pitfall altogether. If, that is, you have a conscientious objection to participating in this government benefits plan. This is where things get a little tricky. Read below for a few quick tips.
How to decide
God calls each of us to be good stewards of His money. As a pastor, you alone can determine if contributing to Social Security is a good, biblical way to manage the resources God has given you. Many people believe taking care of oneself is a matter of personal responsibility, and that the church—not the government—should be on hand to provide for those who can’t take care of themselves. Based on your beliefs as a minister, you have the right to opt out of Social Security!
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How to cover your bases
Keep in mind that electing to not pay into the system now ultimately means you’re electing to not receive benefits later. So you’ll need to be financially prepared for retirement. You’ll also need to make sure your family is covered if you are disabled or if you die. To cover your bases, buy term life insurance, long-term disability insurance and long-term care insurance. Of course, long-term care insurance is only necessary if you are 60 or older. If your debts are paid and you have three to six months of expenses in the bank, you should also contribute to a 403(b) and Roth IRA.
How to complete the paperwork
The required paperwork to opt out can be found in Publication 517 from the IRS. You’ll complete Form 4361 to request approval for exemption. Note, though, that this exemption only applies to your ministerial income. Any other source of income, such as a non-ministerial part-time job, is still subject to Social Security deductions.
Overall, if you have a genuine objection to running your ministerial income through the Social Security system, this is a fantastic option. But whatever you do, make sure you’re covering the insurance and investing bases first! It’s always a good idea to consult a tax professional you trust to help you decide which path is best for you.