Just about any life event—big or small—can affect an employee’s income tax withholdings. It’s best to adjust withholdings as soon as a life-event occurs, but taxes may be the last thing to come to mind when getting married or welcoming a new child. To promote accurate withholdings, remind employees to report any life events that could impact their tax status. Clergy can also benefit from an annual withholdings review. A mid-year check can help keep a minister’s estimated taxes and housing expenses on track. Events that can trigger the need to adjust withholding amounts include:
As an added measure, encourage all ministry employees to take an annual look at their year-to-date paycheck summary, and conduct an income tax withholding status check. The Withholding Calculator from the Internal Revenue Service can help determine proper withholding amounts, so that mid-year adjustments can be made. Self-employed workers, like some pastors, who make quarterly tax payments may achieve estimates that are more accurate by following these instructions.
Failure to withhold the proper amount could result in a tax shock next year. An employee could receive a less-than-anticipated refund or owe taxes. Too much money withheld may mean a bigger refund, but withholding more than required could have an impact on month-to-month cash flow.
If employees want to make changes to their withholdings or estimated tax payments, they should file a new Form W-4 with the ministry’s payroll administrator. Do not allow employees simply to give a “verbal” notice of change.
The information in this article is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.