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What a Payroll Tax Deferral Means to Churches

Updated: Sep 29, 2020

In a memorandum held on August 8th, 2020, President Donald J. Trump instructed a delay for the collection of payroll taxes for people who earn less than $4,000 every two weeks or under $104,000 yearly (pre-tax), from September 1st to December 31st. The taxes paid by both the employee and their employers are used to fund Social Security and Medicare. This tax however will have to be paid beginning of next year.

A report by Business Insider suggested that Trump’s decision may create tension between employers and workers. This was signed as Congress has been unable to agree on a second stimulus package, after the talks of the corona virus relief package that collapsed on the 7th of August 2020. However, Treasury Secretary Steven Mnuchin said that there won’t be cuts to Social Security or Medicare from this, which will instead be paid out from the general federal budget. The tax code also allows the Treasury Department to delay tax deadlines for up to a year only in the case of national emergencies, said Daniel Hemel, a tax-law professor at the University of Chicago. President Trump also said that if he were re-elected, he would extend it beyond the end of the year and terminate the tax. While the President does have the authority to order the IRS to stop collecting taxes, he cannot completely remove this tax bill without the approval from Congress.

Although this bill aimed to ensure that workers could have their paychecks full to support themselves financially during this world wide pandemic, Seth Hanlon a tax expert Center for American Progress said that it's likely that employers would not hand over that cash to the employees as they are eventually liable for the employees share of tax. “Knowing that, employers would be taking an enormous risk if they didn’t withhold the tax they’re legally liable for.” If the legalization goes through, workers should try to save that money for the eventual tax bill.

What Should Employers Look Out For?

If your church pays payroll taxes for its non-minister employees and Social Security or Medicare taxes for those licensed ministers who have not opted out of them, then follow these steps to stay on top of your taxes this year:

1. Agency Guidance

Churches should actively monitor upcoming guidance from the Department of Treasury.

2. Risk Assessment

Balance the benefit of releasing affected taxes to eligible employees against the possibility of having to recoup those taxes later.

3. Review Payroll Processes

Take time to evaluate now how quickly they can alter their payroll practices and procedures in case they decide to opt for this payroll tax deferral.

For more tax queries or advice, visit and get in touch with their trusted tax and financial planning experts.

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