Payroll Tax Deferral: Still Too Many Uncertainties
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Employers should not participate in the payroll tax deferral program that begins in September; it is still too risky without additional guidance.
On Friday the Department of the Treasury and IRS issued three pages of guidance implementing the Presidential Memorandum that asked for the collection and payment of the 6.2% Social Security tax on wages paid by eligible employees to be deferred. Employer participation is optional; however, if an employer elects to participate, it may only do so under the following circumstances:
On Friday the Department of the Treasury and IRS issued three pages of guidance implementing the Presidential Memorandum that asked for the collection and payment of the 6.2% Social Security tax on wages paid by eligible employees to be deferred. Employer participation is optional; however, if an employer elects to participate, it may only do so under the following circumstances:
- Eligible Employees. Only employees whose wages for a bi-weekly pay period are less than $4,000 are eligible employees whose 6.2% Social Security tax may be deferred.
- Applicable Pay Periods. It only applies to wages paid to an eligible employee during any pay period occurring on September 1, 2020 through December 31, 2020.
- Employer Responsibility for Repayment. If an employer participates in this program by paying its eligible employees the tax it would have otherwise withheld, the employer is responsible for repaying these amounts by withholding the amounts from the eligible employees’ wages for pay periods occurring on January 1, 2021 through April 30, 2021. If the amounts deferred are not repaid by April 30, 2021, interest, penalties, and additional tax will begin to accrue on May 1, 2021.
- Personal Liability. Keep in mind that the amount being deferred is part of the employer’s trust fund taxes. Meaning that it is one of the few taxes that the owners and officers of the employer can become personally liable for if it is not paid.
Once again more questions are raised than answered. While employers and employees now know the due date for repaying any amounts deferred, there is no guidance for how employers should handle employees who deferred paying taxes in 2020 but are no longer employed by the employer in 2021. The guidance indicates that the employer would still be responsible for repaying the amounts deferred for employees who are no longer employed by the employers. The obvious solution to this would be if the tax owed was forgiven. However, there is no indication that it will be forgiven despite President Trump stating that he will forgive it if he is reelected.
Please contact Kemp Smith’s Tax Department at 915-533-4424 with any questions.
Please contact Kemp Smith’s Tax Department at 915-533-4424 with any questions.
