Payroll Taxes: Withholding, Matching, and Remitting
Is the church or nonprofit required to withhold payroll taxes from its employees' paycheck?
If you are a nonprofit, you are required to withhold and pay payroll taxes.
If you are a church and if you have any non-minister employees, you must withhold Income tax, Social Security tax, and Medicare tax from their paychecks.
Even if your church only has minister employees, you still may have to withhold income tax, if your minister has elected voluntary income tax withholds on his W-4. So, most churches will be required to withhold payroll taxes and remit them to the IRS.
For those of you residing in the beautiful country of Canada, I found a great payroll tax resource for you...Church Treasurers of Canada Inc
Each employee, including the minister if he has elected voluntary income tax withholding, must complete a W-4.
For non-minister employees, you must withhold the following taxes:
Federal income taxes (based upon information provided in a W-4)(Use the withholding charts from IRS Publication 15, also known as Circular E)
Social Security withholdings is 6.2% of gross wages.
Medicare withholdings is 1.45% of gross wages.
Does the church or nonprofit have to match FICA tax?
Yes. Your organization must match the FICA tax withheld from non-minister employees’ paychecks. The amount of the matching is:
Social security 6.2%
Medicare 1.45%
Total matching 7.65%
Regarding FICA tax and minister's paychecks...see my
Clergy Tax page
How does your organization pay its payroll tax?
It depends on whether your payroll liability is determined to be small, medium, or large.
Your payroll tax liability is considered small if, for the entire quarter, your tax liability is less than $2,500.
If you fall within this category and most of you probably will, simply prepare the
IRS Form 941
on or before the due date the IRS has set up.
Indicate the amount of tax due on the bottom of the form. Include a check payable to the United States Treasury for the amount of the tax due. Put the Form number, year, and which quarter it is for on your check.
Make sure you include the 941-V with your check. Mail to the address provided on the Form 941 Instruction booklet.
Your tax liability is considered large if for the previous two years, the average payroll tax liability is more than $50,000 per year. If your payroll liability is this high, my recommendation for you is to hire an experienced CPA.
If your payroll tax liability is more than $2,500 pr quarter and less than $50,000 per year, you fall into the medium category.
You must remit your payroll tax liability to the IRS on a monthly basis. For more information, read the
Form 941 Instructions booklet.
Do Churches have to pay federal or state unemployment taxes?
Churches are exempt from federal unemployment taxes. Many states also grant exemption to churches from state unemployment taxes.
Consult the state unemployment tax agency for your particular state to make sure your state grants an exemption to churches
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