Employers May Not Be Withholding Enough Taxes

The IRS has released a notice to all employers.

Church Law and Tax 1991-09-01 Recent Developments

Social Security

The IRS has released a notice warning employers that they may not be withholding enough taxes. It urges all employers to read the notice. The notice is quoted in full below:

Until this year, most employers used two tables to withhold federal tax from employee earnings, one for income tax and the other for social security and medicare taxes. For 1991, three tables in Circular E, Employer’s Tax Guide, are needed because, in addition to income tax withholding, the law changed to divide social security and medicare into separate categories.

While this total rate for both taxes is 7.65%, the same total as last year, the 6.2% social security tax is withheld on the first $53,400 of wages and the 1.45% medicare tax is withheld on the first $125,000 of wages. Thus, most employers will have to use BOTH the 6.2% and 1.45% tables on pages 44 and 46 of Circular E.

Social security and medicare taxes must be reported separately on the enclosed Form 941 on lines 6 and 7. They will also have to be reported separately when you prepare Form W-2 for 1991.

If you have not been withholding both the 6.2% social security tax AND the 1.45% medicare tax, you need to correct your withholding immediately. You will have to report and pay the full amount with your current Form 941. You should make arrangements with each employee to make up any underwithheld amount in future pay periods during 1991.

The requirements summarized in this notice will apply to any church or religious organization that (1) has one or more non-minister employees, or one or more minister employees who have elected voluntary withholding, and (2) pays total compensation to any one or more such employees of more than $53,400 for 1991.

Federal Payroll Tax Reporting Requirements

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