Assessing the Tax Relief Act
What should churches note when preparing taxes for 2010 and beyond?

Several tax provisions expired at the end of 2009, and several more expired at the end of 2010. Congress enacted legislation (the "Tax Relief and Jobs Creation Act") late in 2010 extending many of these provisions, meaning that they will be available when preparing your 2010 tax return and when computing estimated taxes and payroll tax withholdings in 2011.

The Act contained a significant provision that was not an extension of an expiring provision. Under current law, employees pay a 6.2 percent Social Security tax on all wages earned up to $106,800 and self-employed individuals pay a 12.4 percent Social Security self-employment tax on all their self-employment income up to the same threshold. The Act provides a payroll tax and self-employment tax "holiday" during 2011 of two percentage points. During 2011, this means employees will pay only 4.2 percent on wages and self-employment individuals will pay only 10.4 percent on self-employment income up to the threshold. This provision will result in an increase in take-home pay for millions of workers. The IRS has issued new withholding tables (see Publication 15) that reflect this change, and churches should begin using the new tables as soon as possible. For any Social Security tax that is over-withheld during January, employers should make an offsetting adjustment in workers' pay as soon as possible but not later than March 31, 2011. Employers and payroll companies will handle the withholding changes, so workers typically won't need to take any additional action, such as filling out a new W-4 withholding form.

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Posted: February 1, 2011
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