September 4th, 2020

On August 8, 2020, President Trump issued a Memorandum allowing employers to defer withholding and payment of an employee’s portion of the Social Security tax. Medicare taxes, however, are not covered. The payroll tax deferral is effective starting September 1, 2020. How does this affects employers and employees?

APPLICABLE WAGES

Applicable wages refer to wages paid to employees during the period September 1, 2020 through December 31, 2020. The payroll tax deferral only applies to an employee with taxable wages less than $4,000 during a bi-weekly pay period or the equivalent amount for other “pay periods.” No deferral is available for any payment to an employee of taxable wages of $4,000 or above for a bi-weekly pay period.

PAYMENT OF DEFERRED APPLICABLE TAXES

The IRS has issued a draft of a revised Form 941, Employer’s Quarterly Federal Tax Return that adds a line to reflect any payroll tax deferrals. If you choose not to defer the FICA portion of an employee’s wages, payment of any applicable payroll taxes is as normal.

Congress may authorize forgiveness for these tax liabilities, but if not employers deferring payroll tax obligations must withhold and pay the total applicable taxes between January 1, 2021 and April 30, 2021. Failure to pay will result in interest, penalties, and additions to tax accruing on May 1, 2021. This means that employees could have double the deduction taken from their paychecks next year to pay back the deferred portion of tax.

Small businesses with employees are encouraged to call us ASAP to discuss how best to proceed for your business.