EVANSTON, Ill. (GBPHB) – President Obama approved a tax relief package on Dec. 17 that includes a Social Security tax break. The tax break goes into effect this month, January 2011, and will result in higher take-home pay for many employed individuals who pay into Social Security.
The new law decreases the percentage of annual earnings (up to $106,800 for 2011) that employees pay into Social Security (the OASDI portion of FICA taxes) in 2011 from 6.2 to 4.2 percent. Under the new rate, employees will pay $4.20 – instead of $6.20 – into Social Security for each $100 they earn in wages.
Church treasurers need to take special note of this change for withholding Social Security taxes on lay employees.
The new law also applies to clergy. It decreases the self-employment taxes that they pay in 2011 from 15.30 to 13.30 percent.
This higher take-home pay creates an opportunity to begin or increase participants in their United Methodist Personal Investment Plan (UMPIP) contributions. UMPIP is a defined contribution (DC) retirement plan that allows eligible clergy and lay employees to make before-tax and/or after-tax contributions through payroll deductions. They can choose to have UMPIP contributions automatically deducted from their paycheck – before they have a chance to spend it. They’re less likely to miss money they never see, and even a 2 percent increase can make a big difference in the amount they have saved by the time they retire.
If United Methodist pastors and other UM employees would like to begin UMPIP contributions or increase their retirement contribution percentage, they may do so by completing the UMPIP “Before-Tax and After-Tax Contributions Agreement.” Participants need to return the form to their employer/salary-paying unit. This form is available online at www.inumc.org, click on Benefits tab.
Whatever participants decide to do with this 2 percent tax break, it’s not a good idea to get used to spending it. The Social Security tax break applies only in 2011.