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ALERT: What you need to know about the Payroll Tax Deferral Plan beginning September 1, 2020
On August 8, 2020, President Trump issued a directive to allow for the deferral of employee payroll taxes for the period of September 1, 2020, through December 31, 2020.
On Friday, August 28, 2020, three days before the program was set to begin, the Department of Treasury and Internal Revenue Service (IRS) finally issued official guidance for taxpayers, Notice 2020-65 (“Notice”). Unfortunately, many questions remain.
The President’s Order called for a deferral of the employee's share of Social Security taxes for the time period beginning September 1, 2020, through December 31, 2020, for certain workers, “ whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis, or the equivalent amount concerning other pay periods." That amounts to roughly less than $104,000.00 per year.
It is important to understand that the President’s declaration is only a deferral of the collecting of the tax; it does not constitute forgiveness of the tax. That forgiveness requires congressional action. This fact is important because the employer is required to withhold that tax. Under the Notice, employers may postpone those withholdings and deposits "until the period beginning on January 1, 2021, and ending on April 30, 2021."
Therefore, the Notice puts the burden not on employees, but on employers. Why is that important? Because the employer is responsible for collecting those deferred taxes from its employees. The Notice states that the employer may collect those taxes 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. Therefore, the employer must recover those taxes from employees over those few months, or pay interest and penalties.
Questions still remain:
Am I, as the employer, solely responsible to pay the tax, or can it be collected from the employee some other way?
Can I, as the employer, collect the interest and penalties from the employee?
Can I collect the tax from an employee other than through doubling the payroll deduction in early 2021?
What if the employee leaves my employment before I collect the tax?
There are no clear answers to these questions yet. Stay tuned for additional guidance.
If you have any questions or concerns, please reach out to us. Additionally, please check out our updated website through the link below, which contains additional updates regarding COVID-19's impact on your business. We are truly grateful for your trust and confidence over the last 20 years. We all will get through this situation together. Rest assured that we are here to assist you in any way we can, as we share our best wishes for the health and safety of those close to you.
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