New tax law is good news for churchesLatest News Tuesday, December 21st, 2010
The new tax law Congress approved and President Obama signed today is good news for generous donors to churches and faith-based nonprofit organizations. These groups must be prepared, however, for sweeping change it brings to payroll processing effective Jan. 1, 2011.
Those who generously give to support churches and nonprofit Christian ministries will be heartened by the extension of federal income tax rates at their current levels for two more years, according to Dan Busby, president of the Evangelical Council for Financial Accountability (ECFA). This provides some short-term certainty that may encourage giving.
The extension of the provisions for tax-free charitable distributions up to $100,000 per tax year from Individual Retirement Accounts (IRA) retroactive to January 1, 2010, and through December 31, 2011, may be helpful for givers age 70-1/2 or older.
The legislation set estate-tax rates at 35 percent and establishes exemptions that would allow couples to pass estates as large as $10-million to their heirs tax-free. Individuals could pass on the first $5-million tax-free.
“The adoption of a 35 percent estate tax instead of a tax at a higher rate is a boon for Christ-centered churches and organizations. This will permit faithful stewards whose hearts are rich toward God to be even more generous in their giving and will result in multiplied millions of dollars being used to carry out the Great Commission,” said Busby.
For most churches and staff, the most immediate effect of the new law will be the Social Security tax cut that impacts:
- Employee Social Security taxes. For only 2011, the OASDI portion of Social Security tax on employees is reduced from 6.2 percent to 4.2 percent on wages earned up to $106,800. The Medicare rate remains 1.45 percent for 2011.
- Self-employed (including ministers) Social Security taxes. The Self-Employment Contributions Act (SECA) imposes two taxes on self-employed individuals: a Social Security tax and a Medicare tax. These SECA taxes apply to net earnings from self-employment above a $400 minimum for the tax year. There is an annually adjusted ceiling limitation on the amount subject to Social Security ($106,800 for 2011), but no limit on the Medicare tax.
ECFA, founded in 1979, provides accreditation to leading Christian nonprofit organizations that faithfully demonstrate compliance with the ECFA standards pertaining to financial accountability, fund-raising and board governance. For more information about ECFA, including information about accreditation and a listing of ECFA-accredited members, visit www.ecfa.org or call 1-800-323-9473.