The IRS has issued Notice 2020-65 deferring the withholding and deposit of the employee’s share of Social Security (OASDI) taxes on applicable wages. Specifically, the deferral applies to applicable wages paid on a pay date between September 1, 2020, and December 31, 2020. The availability of deferral is based on the date the employee is paid. The date on which the wages were earned is not determinative.
It is optional for the church to participate (Confirmed during an IRS Payroll Industry Conference Call 9/3/2020). If the church doesn’t want to participate, no action is needed. If the church does participate, the employee needs to elect the deferral option. The employee should provide the church written authorization.
The Notice explains that the regulations do not explicitly postpone the deposit obligation; however, they do postpone the withholding time for the employee payroll tax, which, by operation, delays the deposit obligation.
The agency issued guidance Friday that implements Trump’s order to delay the due date for payroll taxes for millions of workers from Sept. 1 through year-end. Come next year, the taxes will need to be paid by April 30, however — unless Congress votes to forgive the liabilities, the release showed.
Churches will be responsible for collecting and paying back any deferred payroll taxes under a directive by President Donald Trump aimed at helping workers while the administration and Democrats are stalemated on a stimulus deal.
Deferral is only available if compensation is less than a threshold amount equivalent to $4,000 on a bi-weekly pay period basis. Equivalent threshold amounts would be $2,000 for a weekly pay period, $4,000 for a bi-weekly pay period, $4,333.33 for a semi-monthly pay period and $8,666.67 for a monthly pay period.
Each pay period is tested separately. The payment of bonuses and commissions affects only the pay period for which they are made. The threshold is a cliff-type calculation. If total wages and other compensation subject to payroll tax equals or exceeds the threshold for any pay period, none of the wages and compensation for that pay period are eligible for deferral.
If lawmakers don’t step up, the guidance says churches must withhold the taxes from employees from Jan. 1 through April 30, meaning that workers will have double the deduction taken from their paychecks next year to pay back the deferred portion.
The guidance puts the responsibility on the churches for ultimately paying back the levies, and that could cause many to decline putting the extra money in workers’ paychecks.
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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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