August 26, 2020
What’s Happening
Recently, Trump signed an executive order to defer certain payroll tax obligations in an effort to provide relief due to COVID-19. Specifically, the guidance relates to the withholding, deposit & payment of Social Security taxes. The period of deferral would run from September 1,2020 through December 31, 2020 and is limited to any employee whose bi-weekly wages each period is less than $4,000 on a pre-tax basis.
Concerns
Repayment
While the order addresses the desire to pursue the ultimate forgiveness of these payroll taxes, currently – this is simply a deferral of social security taxes. As it stands, these taxes will have to be repaid at the beginning of 2021, and employers will be liable for this debt when it comes due.
Implementation
There is currently no clear guidance from the U.S. Treasury Department for employers on the basic questions, such as whether an employee may opt in or out of the deferral, how employers should recover deferred taxes if the employee is no longer employed at the end of the deferral term and how to implement the deferral if a COVID-19 legislation deferral is already in place, to name a few.
Timing
Payroll software providers need time to update their systems, and they can’t do that without guidance from the IRS and Treasury.
Our Recommendation
One thing 2020 has taught us (the hard way) is not to claim benefits without having sufficient guidance. So, at this time, we do not recommend making any changes to your current payroll tax situation until or unless more guidance is given from the U.S. Treasury. The onus for employers for now will be providing explanations to employees who want to know why the deferral isn’t being implemented. We hope this quick explanation helps!
We’re here when you need us!
Kali R. Skar
Principal
The Q Advisors, LLC
Always be humble and gentle. Be patient with each other, making allowance for each other’s faults because of your love. Make every effort to keep yourselves united in the Spirit, binding yourselves together with peace. – Ephesians 4:2-3