3 Things to Know: New Employer Payroll Tax Deferral Guidance

On August 8, 2020, a presidential memorandum was issued with the intent of deferring the employee portion of payroll taxes, specifically the 6.2% of the compensation that is normally withheld for social security. Recently, the IRS has issued guidance on a few key aspects that relate to the employers. While many questions involving this deferral remain, here are 3 things employers need to know about the new guidance:

1. The new guidance does not say directly that participating on September 1, 2020, through December 31, 2020 payroll tax deferral is mandatory. The use of language such as “allow” and “available” in the original presidential memorandum eludes to participation by employers as being optional.

2. Employers will be responsible for the repayment of the deferred taxes. Deferred taxes are to be withheld ratably from employee compensation between January 1, 2021, and April 30, 2021, and submitted by the employer. One concern that has been raised relates to employees that leave before the taxes are repaid and is addressed briefly in the new guidance. The notice states that an employer “may make arrangements to otherwise collect the total Applicable Taxes from the employee”, if necessary, but does not disclose how far an employer can go to recover the taxes. It is important to note that interest and penalties will begin to accrue on unpaid balances starting May 1, 2021.

3. Applicable wages are to be determined per pay period and do not consider other pay periods where an employee may have surpassed the $4000 bi-weekly threshold for qualifying. A link to IRS Notice 2020-6 can be found here: https://www.irs.gov/newsroom/guidance-issued-to-implement-presidential-memorandum-deferring-certain-employee-social-security-tax-withholding

As we continue to learn more about the payroll tax deferral, we will be updating our social media pages and website with articles and links. For more information on COVID 19 relief or if you need help with understanding how this and other COVID 19 relief programs will affect your business, contact our tax professionals at The Innovative CPA Group at 203-489-0612. Or contact us online.

By Ashley Laufer, CPA