In late February, Congress passed—and President Obama signed into law—an extension to the payroll tax holiday for the remainder of 2012 to provide a small increase in take-home pay for about 160 million workers. The holiday involves a 2 percent reduction in employee withholdings for Social Security. Church employees who are eligible for Social Security should have 4.2 percent withheld, as well as 1.45 percent for Medicare, for a combined 5.65 percent on each paycheck. Ministers are self-employed for Social Security with respect to their ministerial services, so their combined withholding rate for Social Security and Medicare is 13.3 percent.
The holiday was originally passed toward the end of 2010 as a part of the "Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010." Just before it expired on December 31, 2011, a temporary extension through February 29, 2012, was passed. With the latest extension now approved through December 31, 2012, employers, including churches, need to make certain they're meeting these withholding requirements.
This article first appeared in Church Finance Today, April 2012.