Congress made several tax law changes in late 2010 – some of which impact ministers and churches. The following information about clergy tax law changes is from CapinCrouse, a CPA firm that specializes in church and nonprofit tax issues.
Non-Clergy Income FICA Changes for 2011
The Social Security payroll tax on individual wages (FICA and Medicare) will be lowered from 7.65% to 5.65%. An individual earning $60,000, for example, will save $1,200. If that individual is paid twice a month, it will mean an extra $50 in his or her paycheck starting in January 2011. Employees do not have to repay this reduction when filing Form 1040 for the 2011 calendar year.
The employer’s share of Social Security (FICA and Medicare) tax is not affected; it stays at 7.65%.
Clergy Income SECA Changes for 2011
While self-employed workers, including ministers, pay both the employer and employee portion of the Social Securty tax, they also get the tax break on the employee portion. The self-employment taxes for pastors will be cut from 15.3% to 13.3%. The Self-Employment Contributions Act (SECA) tax deduction on Line 27 of Form 1040 – the equivalent of the employer portion of Social Security tax – will not be affected by the change and will remain at 7.65% for 2011.
If you are a pastor and your church withholds money from your paycheck to cover the SECA tax, you might want to adjust your withholding accordingly. As always, we encourage you to check with an attorney before making any changes.