Your 2% Pay Raise!!!!!

As a part of the “Tax Relief and Jobs Creation Act,” passed by Congress in the closing days of 2010 and signed by President Obama almost immediately afterwards, there is a partial payroll tax “holiday” provided to employees in 2011. Under the provision, the employee’s share of payroll taxes will drop by two percentage points for the entirety of 2011. Simply put, instead of an employee having FICA withholding of 7.65%, his or her share will be reduced to 5.65% for this year only. In addition, self-employed persons (including ministers who are treated as self-employed for Social Security purposes but employees for income tax purposes) will see their overall SECA payroll tax liability decrease from 15.3% to 13.3% this year.

Under the payroll tax rules, an employee faces a reduction of 7.65% from his or her compensation to pay their share of payroll taxes. The employer, in turn, pays a like amount of 7.65% above the employees’ compensation as a matching share of the payroll tax liability. Each share is divided among Social Security taxes (6.2%) and Medicare taxes (1.45%). The self-employed person has to pay both shares, equaling 12.4% for Social Security and 2.9% for Medicare.

The tax holiday provided for under the Tax Relief Act of 2010 reduces the employee’s share of the Social Security tax to 4.2% (rather than 6.2%), maintains the Medicare portion at 1.45%, and maintains the employer’s share at a total amount of 7.65%.

Effectively, this provision of the Tax Relief Act gives all employees a 2% raise in 2011. This provision was included in the tax bill as a way to hopefully stimulate the economy by providing more income in the pockets of American workers. However, everyone must remain mindful that this provision is only effective in 2011.

The Internal Revenue Service has issued new withholding tables (Publication 15) that contains this new payroll provision. Since both church employees and ministers are impacted by this change in the law, churches should begin using the new tables found in Publication 15 as soon as possible. If you have not started using the new tables, over-withholding has occurred. If there has been over-withholding, churches should make an offsetting adjustment in worker’s pay as soon as possible – but no later than March 31, 2011.

Since this payroll tax reduction will go away at the end of the year, employees should be encouraged not to become dependent upon these newly found dollars. Increasing salary reduction withholdings and putting the additional 2% in one’s retirement account allows the employee or minister to increase their retirement account and also not become dependent upon this additional amount in future paychecks after 2011.

Please remember that you can access previous In the Know articles on our blog site at

About benefitsboard

Art Rhodes is the President and CEO of the Church of God Benefits Board, Inc. - the administrator of the Ministers' Retirement Plan and the Church Loan Fund, Inc. The corporate offices of the Benefits Board are in Cleveland, TN.
This entry was posted in Form W-2, Internal Revenue Service, Ministers, Pay Roll Taxes, Tax Information. Bookmark the permalink.

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