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Business Update: Guidance Issued On Payroll Tax Deferral

Business Update: Guidance Issued On Payroll Tax Deferral

On August 8th, President Trump issued an Executive Memorandum calling for a temporary deferral of employees’ 6.2% Social Security tax, and we understand you, as well as many of your employees, are curious about what this means for the upcoming pay periods.

In summary, the President directed the Secretary of the Treasury to allow deferral of withholding, deposit, and payment of the employees’ portion of the tax between September 1, 2020, and December 31, 2020.  This deferral would apply to employees making less than $4,000 on a bi-weekly pay period or an equivalent amount over any period.  The Memorandum only addresses the option for employers to defer the tax due during the last 4 months of the 2020 calendar year.  At this time, Congress has not provided for forgiveness of such tax.

Notice 2020-65  was issued by the IRS on Friday, August 28th, and provides the deferred tax amounts be repaid between January 1, 2021 and April 30, 2021.  The Notice states that “Affected Taxpayers must withhold and pay the total Applicable Taxes that the Affected Taxpayer deferred under this notice ratably from wages and compensation paid between January 1, 2021 and April 30, 2021 or interest, penalties, and additions to tax will begin to accrue on May 1, 2021.”  The guidance further states that “if necessary,” the employer “may make arrangements to collect the total Applicable Taxes” from an employee.  There is some concern that if such arrangements could not be made, the employer could be liable for remitting the full amount of deferred tax.  For example, this scenario could occur if an employee leaves a job during the deferment period, and the employer no longer has an avenue through which to withhold the tax due in the new year.

Friday’s IRS guidance leaves limited time for employers to determine if they are going to participate in the deferral and if they are, to implement a plan. There are uncertainties on this topic and the potential for further guidance to evolve.  In the meantime, as you make decisions for your business and employees, please let us know if you have questions.

 

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