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Workers' Payroll Tax Deferral


Employers in the U.S. have not rushed to offer their workers a suspension of Social Security payroll taxes through the end of the year, given that employees would need to repay those deferred taxes during the first four months of 2021—unless legislation is enacted to forgive this obligation—under guidance the IRS issued Aug. 28.

The payroll tax "holiday," or suspension period, runs from Sept. 1 through Dec. 31, 2020, and applies only to employees whose wages are less than $4,000 for a biweekly pay period, including 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

Read the rest of the article:
Employers Hesitant, Confused Over Payroll Tax Suspension
SHRM | Sep 2020

OMB Tells Agencies to Defer Federal Workers' Payroll Taxes
SHRM | Sep 2020

Employee Social Security Tax Deferral Guidance: Too Little, Too Late?
Winston & Strawn via SHRM | Sep 2020

IRS Guidance Makes Workers' Payroll Tax 'Holiday' Voluntary for Employers
SHRM | Aug 2020

Notice to Employees Explaining the Decision Not to Defer Social Security Tax Withholding
Notice to Employees of Temporary Social Security Tax Deferral
SHRM Samples | Sep 2020

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Optional for Employers
Shortly after the memorandum was released, Secretary Mnuchin confirmed that the deferral is voluntary and that employers may continue to withhold and deposit employee Social Security taxes in accordance with their normal schedule
IRS Issues Notice 2020-65 Providing Guidance on Employee Social Security Tax Deferral
Covington | Aug 2020

Employee Eligibility Can Vary by Pay Period
In regards to the $4,000 bi-weekly limit, Notice 2020-65 clarifies that the limit is to be applied pay period-by-pay period, and "irrespective of the amount of wages or compensation paid to the employee for other pay periods."  Thus, if between September 1, 2020 and December 31, 2020 an employee is paid less than $4,000 for a particular bi-weekly pay period, deferral of the employee's Social Security taxes is permitted for that period, even if the employee is paid more than $4,000 for another bi-weekly pay period (for which deferral would not be available under the President's memorandum).
Risks Remain Following the IRS's Issuance of Guidance on the President's Payroll Tax Deferral
Kelley Drye | Aug 2020

Employee Ability to Opt-Out Unclear
The Notice does not provide any guidance regarding employee participation and if an employer chooses to defer withholding, whether such deferral must be for every eligible employee or whether the employer can limit the deferral to just those employees that request it.
Employers Have Little Incentive to Implement Social Security Tax Deferral Under New IRS Released Guidance
Partridge | Aug 2020

Risk for Employers
Under the current guidance, employers are not obligated to participate in the deferral program. Employers who opt-in leave themselves at risk for repayment of the deferred tax with no guarantee that Congress will forgive the obligation. Despite the recent IRS guidance, the least risky plan of action is for employers to continue withholding and await release of complete IRS guidance or definitive legislative action, neither of which may ever transpire.
Employers Face Difficult Decision About Deferring Payroll Tax
Reinhart | Aug 2020

About the Presidential Memorandum
Companies and payroll administration firms in the U.S. say they won't be able to comply with a presidential directive that sought to allow employers to defer employees' portion of Social Security payroll taxes beginning Sept. 1.

On Aug. 8, President Donald Trump issued a Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, which directed the Treasury Department to suspend collection of the employee portion of Social Security FICA taxes—part of required payroll tax withholding—from Sept. 1 through the end of 2020. The deferred taxes would have to be repaid unless Congress enacted legislation stating otherwise.

Read the rest of the article:
Lacking Time and Guidance, Businesses Won't Defer Employees' Payroll Taxes
SHRM | Aug 2020

Actions on Payroll Taxes and Unemployment Benefits Promise Relief, Raise Questions
SHRM | Aug 2020

Read the Presidential Memorandum here.

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Law Firm Articles

The deferral applies only with respect to employees who generally are paid less than $4,000 per biweekly pay period ($104,000 annually) on a pre-tax basis, or the equivalent amount for other pay period frequencies.
Trump Administration opens the take-out menu, orders payroll tax relief
Eversheds Sutherland | Aug 2020

Given that a comprehensive stimulus bill may be passed that will obviate the need for the Executive Order, the anticipated Treasury guidance, and the September 1 effective date, we do not recommend that employers take immediate action to implement the deferral.
What It Means: Executive Order on Deferring Payroll Tax Obligations
Jackson Lewis | Aug 2020

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