Payroll tax deferral executive order
On Friday the IRS issued guidance on the Presidential Executive order related to the deferral of employee social security. The deferral is for payrolls starting on or after 9/1/2020. This has allowed limited time for employers to act. As an employer you may have the option to opt out of providing this to your employees. If not, it is your responsibility as the employer to track and monitor the amounts deferred and the payback in 2021.
If you participate, please have a discussion with your employees about the process and the fact they, as of now, will have to repay this in 2021. We suggest speaking to your payroll companies to discuss your options and their plans on accounting for the deferral. Also your options and reporting requirements if you plan to opt-out. We assume more guidance will be provided on both sides.
HIGHLIGHTS
President Trump issued an executive order to defer the 6.2% tax employees pay toward Social Security from Sept. 1 until Dec. 31. This is only a deferral — not forgiveness of the tax owed.
The IRS issued guidance late last week, placing the responsibility on employers for collecting the tax deferred. It must be paid by April 30, 2021 or else penalties, interest and other taxes will apply.
Employees who partake in the payroll tax deferral would enjoy a temporary boost in their take-home pay for the remainder of the year. However, they will see smaller paychecks early next year as employers withhold and pay the deferred amount to the IRS.
No deferral is available for any payment to an employee of taxable wages of $4,000 or above for a bi-weekly pay period.
But what if the employee leaves the company? What if the employee doesn't make enough money to ratably pay back the tax? The Notice doesn't address what happens in those circumstances, but it would appear that the obligation to make those payments remains with the employer. The Notice states that the employers can make arrangements to otherwise collect the deferred taxes. Even in the case of that employee is no longer being employed at that company.
This is what we know for now. All rules and regulations are still being developed and the items above are always subject to change.
