On August 28, the IRS issued Notice 2020-65 on the deferral of employee payroll tax obligations, as originally described in the Trump Administration’s Executive Memorandum dated August 8. The brief guidance provides employers with basic information on key items, including how repayment is to be made and the definition of compensation for purposes of the eligibility threshold.
This short communication has not addressed the many questions employers have raised and much remains unanswered. While we’ll await further guidance, here’s what this notice does tell us:
Employers can defer the withholding and deposit of the employee portion only of the Old Age, Survivors, and Disability Insurance (OASDI) segment of FICA taxes, i.e., the 6.2% tax on employee wages.
If withheld, regular deposit rules apply, meaning that these funds must be remitted to the IRS. The employer cannot hold the funds.
The suspension period applies to paychecks dated Sept. 1 through Dec. 31, 2020, and applies only to employees whose wages are less than $4,000 for a biweekly pay period and to salaried workers earning less than $104,000 per year.
Companies that suspend collection of employees' payroll tax would collect additional amounts from workers' paychecks from Jan. 1 through April 30 next year to repay the tax obligation.
It’s the Employer’s Decision
You as an employer are ultimately responsible for paying the tax by April 30, 2021 and recording it collectively on your 941. The decision to participate in the program is on the employer. Whatever you decide, the team at Paywerx is here to follow and implement your decision.
The intent of this payroll tax deferral is to stimulate the economy by putting more dollars in your employees’ pockets now. Therefore, you may have pressure from your employees to do just that. However, it’s important for each party to realize the consequences of this deferral. For the employee, these consequences come in the form of a smaller paycheck next spring.
For the employer, these consequences are more significant. The burden of collecting these deferred amounts is upon you. Should your employee(s) make a job change before the deferred amount is withheld and remitted, it is your responsibility to collect the remaining balance to submit to the IRS. The guidance states that employers “can make arrangements to otherwise collect the applicable taxes from the employee” but does not provide further details. It is possible, in reducing a final check to an employee, there would be insufficient funds to cover the deferred taxes.
State laws may prevail.
Please keep in mind that there may be legislation in your specific state(s) that could impact the collection of deferred monies in the event an employee is terminated. Please turn to your trusted accountant for counsel on the best path for your business.
Manual Work will likely be involved.
Should you choose to offer this deferral option to your employees, there will likely be manual work implicated as Paywerx must adjust and track amounts for reporting on the 941. We are waiting for our software platform to define the means of tracking the deferral program in general and hope to employ streamlined methods. Please be aware that any manual work conducted by Paywerx will be billed in quarter hour increments.
Making quick decisions, Paywerx and CRI are here to help.
With the notice being issued one business day before the September 1 eligible starting date, companies are scrambling to make critical decisions. Do we opt out of this deferral program entirely? Do we offer this deferral option to our employees? Do we have plans and procedures in place in case those employees leave the company?
With so many questions running through your head, please reach out to your accountant or legal advisor for guidance. Paywerx will assist you with implementing the program however our team does not provide counsel.
Please inform your dedicated Paywerx Payroll Consultant if you choose to participate in the deferral program.
Thank you for the opportunity to serve your organization,
Your friends at Paywerx