Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 71-258

1971-1 C.B. 283

Section 1402 -- Self-Employment Income Defined
Section 3121 -- Social Security Definitions
Section 3401 -- Income Tax Withholding

IRS Headnote

Determination of whether a minister serving as a hospital chaplain is performing services "in the exercise of his ministry" for purposes of the FICA, income tax withholding, and self-employment tax.

Full Text

Rev. Rul. 71-258

Advice has been requested whether service performed by any of the ministers described below is "in the exercise of his ministry" for purposes of section 1402(c)(4) of the Self-Employment Contributions Act of 1954, section 3121(b)(8)(A) of the Federal Insurance Contributions Act, and section 3401(a)(9) of the Collection of Income Tax at Source on Wages (chapter 2, subtitle A, and chapters 21 and 24, subtitle C, respectively, Internal Revenue Code of 1954).

The ministers in question are duly ordained, commissioned, or licensed ministers of various churches and church denominations who serve as chaplains at church-related hospitals and health and welfare institutions, at private nonprofit hospitals (not church-related), and at government owned and operated hospitals. The chaplains are not "members of a uniformed service," as defined in section 3121(n) of the Code. The services performed by the chaplains include the conduct of religious worship, the ministration of sacerdotal functions, and spiritual counseling.

Section 1.1402(c)-5 of the Income Tax Regulations and sections 31.3121(b)(8)-1 and 31.3401(a)(9)-1 of the Employment Tax Regulations provide, in part, exceptions for service performed by a duly ordained, commissioned, or licensed minister of a church "in the exercise of his ministry." Service performed by a minister "in the exercise of his ministry" includes the ministration of sacerdotal functions and the conduct of religious worship, and the control, conduct, and maintenance of religious organizations and integral agencies of such organizations. If a minister is performing service in the conduct of religious worship or the ministration of sacerdotal functions, such service is "in the exercise of his ministry" whether or not it is performed for a religious organization or integral agency thereof. However, service performed by a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, a State, Territory, or possession of the United States, the District of Columbia, a foreign government, or a political subdivision of any of the foregoing, is not considered to be "in the exercise of his ministry," even though such service may involve the ministration of sacerdotal functions or the conduct of religious worship. Such service is considered to be performed in his capacity as an employee of the government and not by a minister "in the exercise of his ministry."

Accordingly, service of the type described above performed by a minister as a chaplain at a government owned and operated hospital is not considered to be "in the exercise of his ministry," for Federal employment tax purposes, and remuneration paid by such hospitals to their minister-employees is subject to income tax withholding. However, the remuneration is not subject to the taxes imposed by the Federal Insurance Contributions Act if the service is excepted from "employment" under section 3121(b)(6) or section 3121(b)(7) of the Act, pertaining, respectively, to service performed by certain Federal and State civilian employees. However, if a chaplain's service is excepted from "employment" under section 3121(b)(7), he may nonetheless have social security coverage under an agreement between the State and the Secretary of Health, Education, and Welfare, entered into under section 218 of the Social Security Act.

Service performed by a minister at either a church-related hospital or health and welfare institution, or a private nonprofit hospital is considered to be "in the exercise of his ministry," for Federal employment tax purposes, and remuneration paid by such hospitals and institutions to their chaplains is not subject to either income tax withholding or the taxes imposed by the Federal Insurance Contributions Act. However, for taxable years beginning after December 31, 1967, a minister performing service "in the exercise of his ministry" is required to take remuneration received for such service into consideration in computing "net earnings from self-employment" under the Self-Employment Contributions Act of 1954, unless the minister qualifies for, and has obtained, an exemption pursuant to section 1402(e) of the Act.

Notwithstanding the fact that a minister's remuneration for service "in the exercise of his ministry" is not subject to either income tax withholding or the taxes imposed by the Federal Insurance Contributions Act, a minister may be able to enter into a voluntary withholding agreement with his employer (providing the relationship of employee-employer exists between the minister and the institution for whom he performs services "in the exercise of his ministry") under section 3402(p)(1) of the Code. Such an agreement may be used to cover income tax due with respect to remuneration paid on or after January 1, 1971. Further, additional withholding may be requested under section 3402(i) of the Code to cover amounts due under the Self-Employment Contributions Act of 1954.