Unless Congress enacts legislation to forgive the deferred payroll taxes, the repayment schedule essentially requires doubled-up social security withholding from employee wages during the period Jan. From a practical standpoint and in light of the program’s timing, employers that choose to implement the program may need to cover all of its employees in any case. However, the IRS guidance does not specify whether individual employees can opt out. Further, the IRS guidance provides that “if necessary, the may make arrangements to otherwise collect the total from the employee.” CBIZ Observations on IRS GuidanceĬonsistent with Treasury Secretary Steven Mnuchin’s previous comments, employers can choose whether they want to offer the payroll tax deferral to employees. If the employer fails to repay any amount of deferred payroll taxes by May 1, 2021, then interest, penalties, and any applicable additions to tax begin to accrue. This means, assuming the employer includes the deferred amounts in an employee’s wages that the employee’s wages will drop correspondingly during the first quarter of 2021. Specifically, employers must withhold and pay back each employee’s deferred payroll taxes ratably from the employee’s wages over the four-month period that spans Jan. 1, 2021, employers are responsible to initiate a repayment schedule for the deferred amounts of employee payroll taxes. Repayment of the Deferred Employee Payroll Taxesīeginning Jan. Each pay period is considered separately, and an employee’s amount of eligible wages in a prior or succeeding pay period has no effect on eligibility.
If in a later pay period the employee’s pay is greater than $4,000, then the employee has no eligible wages for that pay period. Thus, if an employee’s bi-weekly pay during a given period is less than $4,000, then the employee has eligible wages for that pay period.
Further, the IRS guidance clarifies that this determination is made on a pay period-by-pay period basis. 31, 2020.Ĭonsistent with President Trump’s executive order, an employee’s “eligible wages” in the IRS guidance means wages or compensation paid for a bi-weekly pay period that are less than the threshold amount of $4,000, or the equivalent threshold amount with respect to other pay periods. The relief provided is for the employer’s requirement to withhold, deposit, and pay the employee’s share of social security tax on eligible wages during the period Sep.
The IRS specified that any employer required to withhold and pay the employee share of Social Security tax is an “affected taxpayer” for purposes of specified disaster relief.
Specifics of the Employee Payroll Tax Deferral Importantly, the IRS guidance could cause an economic hardship for many employees while exposing employers to a new contingent liability. But the IRS guidance leaves some questions unanswered, even as the optional deferral period takes effect September 1. The IRS guidance provides key details on employee eligibility, the repayment period, and employer responsibilities. Late Friday, the IRS released guidance that implements President Trump’s executive order permitting employers to defer certain employee payroll taxes.
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