Today marks the first day that employees could choose to take advantage of the payroll tax deferral that is a result of the August 8th executive order from President Trump. There has been so much confusion surrounding the payroll tax deferral executive order and even the guidance that was released by the IRS and the Treasury on August 28th, has done little to erase these questions. There are many that question how this will boost the economy. It does not provide for permanent relief (or at least not as of current guidance) for employees and creates an administration and implementation nightmare for employers.
The order allows for employees to elect to have their portion of the Social Security tax withholding deferred for wages paid September 1- December 31, 2020. It applies to employees whose wages or compensation, payable during any biweekly pay period, generally are less than $4,000, or the equivalent amount with respect to other pay periods. This will generally exclude those that make more than $100,000 annually.
The big issue here is that repayment is required. This is not a forgiveness of those taxes. Employees who choose to have this tax deferred will begin to have that tax repaid on their checks for wages paid January 1, 2021- April 30, 2021. The problems here: What if an employee leaves their job before the repayment? What if their wages are not enough to ratably pay back the tax? The guidance doesn’t specifically address these issues, but it seems like the burden will fall on the employers. Further administration uncertainties remain for employers. At this point, we are not sure how this will be reported. It is assumed that we will see yet another revised Form 941.
Holbrook & Manter will continue to monitor this situation and keep you posted on future developments. If you have questions, please reach out to us today.