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Revoking an exemption from Social Security. Will Congress give ministers another opportunity to revoke an exemption from Social Security? It does not seem likely, at least for now. In 2005 Congressman David Camp (R-MI) introduced a bill (H.R. 451) that would have allowed ministers a limited time to revoke an exemption from Social Security. The same opportunity has been granted three times by Congress over the past 30 years. The current attempt gained no cosponsors and is now dead. No similar legislation was introduced in 2006 or 2007.

Rejection of some ministers' applications for exemption from self-employment taxes. The IRS is rejecting some ministers' applications for exemption from self-employment taxes (Form 4361) because the applications were filed before the minister worked at least two years in the ministry. Ministers may exempt themselves from self-employment (Social Security) taxes with regard to services they perform in the exercise of ministry if they file an exemption application (Form 4361) with the IRS by the due date of the federal tax return (Form 1040) for the second year in which they have at least $400 of self-employment earnings, any portion of which comes from ministerial services. The IRS apparently is interpreting this requirement, at least in some cases, to mean that ministers are not eligible to submit Form 4361 until they have worked at least two years. This is an incorrect interpretation of the tax code, which simply defines the deadline for filing Form 4361 and does not forbid ministers from filing the form until they have been engaged in ministry for at least two years. In fact, such an interpretation is absurd, since it means that ministers will have to file the form after the deadline has expired.

Housing allowances and the earned income credit. An unanswered question is whether a housing allowance (or annual rental value of a parsonage) should be treated as earned income when computing the earned income credit. If so, then earned income will be higher, making it more likely that a minister will not qualify for the earned income credit. In the 2001 tax law (EGTRRA), Congress clarified that the term "earned income" includes only "amounts includible in gross income for the taxable year.? However, Congress added that earned income also includes "net earnings from self-employment." The problem is that ministers are always considered self-employed for purposes of Social Security with respect to their ministerial services, and so their entire church compensation constitutes "net earnings from self-employment" unless they filed a timely exemption application (Form 4361) that was approved by the IRS. Logically, then, housing allowances should be treated as earned income for those ministers who have not exempted themselves from self-employment taxes by filing Form 4361. On the other hand, ministers who have exempted themselves from self-employment taxes should not treat their housing allowance as earned income in computing the earned income credit.

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