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Understanding Religious Organization Tax Laws #1: Employment

September 22nd

Congress has enacted very particular tax laws for churches, other religious organizations, and ministers. Churches and religious organizations are typically exempt from income tax and receive other kinds of favorable treatment. However, certain income is still subject to taxes.

Individuals involved in the running of religious organizations should be aware of the rules and regulations of the tax code as it pertains to these groups.

More information can always be obtained from a qualified tax attorney with particular knowledge of this area of the tax code.

Most important is to understand IRS regulations as they relate to employment and payroll. Religious organizations are always required to withhold, report, and pay income and Federal Insurance Contributions Act (FICA) taxes on behalf of their employees.

1. Employment Tax Withholdings.

Employment tax includes income tax withheld and paid for an employee, as well as any withheld FICA taxes paid on behalf of an employee.

Organizations that fair to withhold and pay the appropriate amount may face substantial penalties against the unpaid taxes.

2. Social Security and Medicare Taxes

Federal Insurance Contributions Act (FICA) taxes consist of both Social Security and Medicare taxes. All wages paid to employees of religious organizations are subject to FICA taxes, with few exceptions. Exceptions apply for those wages paid in exchange for duties performed by an ordained or licensed minister of a church, or by a member of a religious order in the service of that group.

3. Unemployment Taxes.

Under the Federal Unemployment Tax Act (FUTA), churches and religious organizations are exempt from paying FUTA tax.



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