The IRS has released an enhanced Tax Withholding Estimator that incorporates changes from the redesigned Form W-4, Employee’s Withholding Certificate.

The new Form W-4 includes changes that can affect employees’ refunds or the amount of tax they owe. For example, income tax withholding is no longer based on the employee’s marital status and withholding allowances, and employees can opt to have tax benefits like itemized deductions and the Child Tax Credit reflected in their withholding.

Employees can use the Tax Withholding Estimator to determine if they want to make adjustments to their withholding and receive specific recommendations for doing so on the new Form W-4.

Key Takeaways for Churches

• You are required to obtain a 2020 Form W-4 for any employees hired during 2020.
   
• You may continue to rely on an existing Form W-4 for employees hired prior to January 1, 2020. However, those employees may benefit from filing a new Form W-4 completed after using the new Tax Withholding Estimator.
   
• Consider encouraging your employees to use the Tax Withholding Estimator to assess their withholding and file a 2020 Form W-4 to make adjustments.

By default, clergy are subject to estimated tax payments on a quarterly basis which include federal, social security and state taxes. For example, when you receive clergy income in the first quarter of the year, the taxes are due at the end of that quarter. The year is divided into four payment periods, or due dates, for estimated tax purposes which are listed below. 

Payment 1 – April 15th (January through March)
Payment 2 – June 15th (April through June)
Payment 3 – September 15th (July through September)
Payment 4 – January 15th (October through December)

Clergy can also elect to have income taxes withheld from their compensation by means of optional withholding agreements when completing lines 3 and 4c on the new W-4 form.

Line 3 Form W-4 provides instructions for
determining the amount of the child tax credit and the credit
for other dependents that you may be able to claim when
you file your tax return. To qualify for the child tax credit, the
child must be under age 17 as of December 31, must be
your dependent who generally lives with you for more than
half the year, and must have the required social security
number. You may be able to claim a credit for other
dependents for whom a child tax credit can’t be claimed,
such as an older child or a qualifying relative. 

Step 4(c). Enter on this line any additional tax you want
withheld for SECA tax for each pay period.

More questions related to optional withholding for clergy?
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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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