For decades, pastors and other religious leaders who elected to opt out of Social Security faced a decision that was generally permanent. Even if their financial circumstances changed or they reconsidered their retirement plans, there was typically no opportunity to reverse that election.
That changed on October 20, 2026, when President Donald Trump signed the bipartisan Clergy Act (H.R. 227) into law.
The legislation creates a limited opportunity for eligible clergy members to revoke their previous exemption from Social Security coverage and begin contributing toward future retirement and Medicare benefits.
For churches, pastors, and ministry administrators, this development raises important questions about retirement planning, clergy compensation, and payroll tax responsibilities.
Understanding the Current Rules for Clergy and Social Security
Clergy members have a unique tax classification that differs from most employees.
Although pastors are generally considered employees of their churches for federal income tax purposes, their ministerial earnings are typically subject to the Self-Employment Contributions Act (SECA), rather than traditional employee and employer FICA withholding.
This means most ministers are personally responsible for paying Social Security and Medicare taxes through the self-employment tax system.
However, qualifying clergy members may apply for an exemption from SECA taxes based on their religious opposition to receiving public insurance benefits. This election is generally made by filing IRS Form 4361.
Once approved, the exemption has historically been irrevocable, except during limited periods authorized by Congress.
For some pastors, particularly those who made this decision early in their ministry careers, the long-term consequences have become increasingly significant as retirement approaches.
What Does the New Clergy Act Change?
The Clergy Act establishes a new, temporary opportunity for qualifying religious leaders to revoke an existing exemption from Social Security coverage.
Under the legislation:
- A two-year election window will be available in 2029 and 2030. Eligible clergy members will have an opportunity to apply to revoke their exemption during that period.
- The decision is voluntary. Ministers who prefer to maintain their existing exemption are not required to change their status.
- Revocation is permanent. Once an eligible minister revokes the exemption, the decision cannot subsequently be reversed.
- Future ministerial earnings become subject to SECA taxes. Ministers who opt back in will generally begin paying Social Security and Medicare taxes on qualifying ministerial income.
- Eligibility for future benefits remains subject to Social Security requirements. Rejoining the system does not automatically guarantee retirement benefits.
The legislation offers an important second chance, but it is not a universal solution for every minister.
Why This Matters for Pastors Approaching Retirement
Consider a pastor who elected to opt out of Social Security early in their ministry career.
After decades of service, that pastor may have accumulated substantial retirement savings through a denominational retirement plan or other investments. However, they may have earned few or no Social Security credits from ministerial employment.
The Clergy Act provides an opportunity to reconsider that arrangement.
By revoking the exemption and paying SECA taxes on future ministerial earnings, eligible pastors may begin accumulating additional Social Security credits.
Generally, workers need 40 credits, typically representing approximately 10 years of qualifying covered employment, to qualify for Social Security retirement benefits.
Pastors who already earned credits through previous nonministerial employment may have a different starting point.
Importantly, the Clergy Act does not automatically restore benefits for years when a minister was exempt from Social Security taxes. Pastors should carefully evaluate their existing credits, anticipated years of future employment, and retirement objectives before making an election.
What About Medicare?
Social Security retirement benefits are only part of the consideration.
Clergy members who have opted out of SECA taxes may also face challenges establishing eligibility for premium-free Medicare Part A through their own ministerial earnings.
Reentering Social Security coverage may help eligible clergy accumulate additional Medicare-covered employment credits.
However, Medicare eligibility depends on individual circumstances, including previous covered employment, age, and potentially a spouse’s work history.
Pastors considering revocation should evaluate both their Social Security retirement benefits and Medicare coverage options with a qualified advisor.
Will Churches Need to Start Withholding Social Security Taxes?
One of the most important distinctions for church administrators is that the Clergy Act does not eliminate the unique payroll tax treatment of ministers.
Generally, ordained, commissioned, or licensed ministers performing ministerial services remain subject to SECA rather than traditional FICA withholding.
Consequently, when an eligible minister revokes a previously approved exemption, the minister generally becomes responsible for paying self-employment taxes on covered ministerial earnings.
Churches should not automatically begin withholding employee Social Security and Medicare taxes or paying employer FICA taxes simply because a pastor revokes their exemption.
Instead, churches should work with their tax advisor and payroll provider to ensure that compensation and reporting are handled appropriately.
This is particularly important for churches employing both clergy and nonclergy personnel, since the applicable payroll tax rules may differ.
How Does This Affect a Pastor’s Housing Allowance?
The clergy housing allowance remains another important consideration.
Under existing federal tax rules, a properly designated ministerial housing allowance may qualify for exclusion from federal income tax, subject to applicable limitations.
However, the housing allowance is generally included in net earnings from self-employment for SECA purposes.
For a minister who revokes a previously approved SECA exemption, this distinction could significantly affect the amount of self-employment tax owed.
For example, a pastor receiving both a salary and a designated housing allowance may have a larger SECA tax base than the salary amount alone would suggest.
Churches should consider this when reviewing clergy compensation arrangements and helping pastors understand the financial implications of the new law.
Five Steps Churches Should Consider
Although the election window does not begin until 2029, churches can begin preparing now.
- Identify clergy members who may be affected.
Church administrators should determine whether any pastors or qualifying ministers previously received an approved exemption from Social Security coverage.
- Encourage pastors to review their Social Security records.
A minister’s existing earnings history and accumulated Social Security credits can help determine whether revoking the exemption would be beneficial.
- Discuss the financial implications.
Returning to SECA coverage means paying additional taxes on qualifying ministerial earnings. Pastors should evaluate the immediate financial cost against potential future benefits.
- Review clergy compensation and housing allowances.
Churches should ensure that clergy compensation arrangements are properly documented and that pastors understand the tax treatment of salary, housing allowances, and other compensation.
- Coordinate with qualified advisors before making changes.
The decision to revoke an exemption is permanent. Churches should encourage affected ministers to consult a CPA or tax advisor experienced in clergy taxation before submitting an application.
A New Opportunity, but Not a Decision to Rush
The Clergy Act represents a meaningful change for ministers who previously opted out of Social Security.
For some pastors, it may provide a valuable opportunity to strengthen retirement security and establish additional eligibility for future benefits.
For others, particularly those approaching retirement or already covered through other employment, the financial advantages may be more limited.
Every situation deserves individual consideration.
The most important takeaway is that pastors now have an opportunity that has not been available for more than two decades.
Churches should use the time before the election window opens to educate their leadership teams, evaluate potential implications, and help affected clergy make informed decisions.
How Payroll Partners Can Help
At Payroll Partners, we understand that clergy payroll involves more than simply processing paychecks.
From ministerial housing allowances and SECA tax treatment to employee classifications and year-end reporting, churches face payroll requirements that differ from those of many other organizations.
As churches prepare for the changes introduced by the Clergy Act, our team can help church administrators understand the payroll reporting considerations and coordinate appropriate changes when necessary.
Have questions about clergy payroll or your church’s current payroll processes?
Contact Payroll Partners to learn how our payroll and timekeeping solutions can help your church simplify administration while maintaining accurate payroll reporting.
Disclaimer: This article is intended for general educational purposes and does not constitute legal, tax, or financial advice. Clergy members should consult qualified tax and financial professionals regarding their individual circumstances. Additional IRS guidance may clarify the application and reporting procedures under the Clergy Act.
