Payroll Tax Deferral started this week (September 1, 2020) and has left many employers and their staff at a loss for what to do. While additional guidance is needed in order to determine how best to proceed, here are the facts about the executive memorandum, and the IRS’ response.
In August, President Trump signed an executive memorandum to defer withholding and payment of the employee’s portion of Social Security tax if the employee’s wages are below $4,000 during a bi-weekly pay period. Since the announcement, the IRS has issued some guidance in their Notice 2020-65 on how to utilize the potential benefit—although many question whether the payroll tax holiday is actually valuable. The IRS clarified that this deferral would not eliminate payroll tax, but rather defer payments due September 1, 2020 and December 31, 2020 to 2021. Employers are responsible for these deferred taxes, and must pay back taxes between January and April 2021, which could cause complications down the road if funds cannot be collected.
It would seem that employers can determine whether to participate in this tax deferral initiative, but it is unclear whether employees can opt out if the employer adopts the program.
Finally, given that the Trump administration would like these deferred taxes to ultimately be forgiven (depending on the results of the upcoming election), another unknown is whether an employee would be prevented from that possible forgiveness if the employee’s payroll tax is not deferred (because the employer chose not to participate, or the employee opted out).
More guidance from the IRS is anticipated.
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