Have Questions Regarding the Payroll Tax Deferral? So Do We…

As you have probably heard by now, there is a payroll tax deferral set to go into effect tomorrow, September 1, 2020.  U.S. Treasury issued guidelines on August 28 regarding the deferral, but there are still some important unanswered questions. 

First, here is what we know:

  • Employers may choose not to withhold the 6.2% OASDI (social security) portion of an employee’s wages, for certain employees during the covered period, as outlined below.
  • Covered employees/wages are those employees for whom any bi-weekly gross, pre-tax wages are less than $4,000.
  • The covered period is September 1 through December 31, 2020.
  • As it currently stands, this is a deferral.  Any deferred amounts will be collected by the employer from the employee’s paycheck during the period January 1 through April 30, 2021, (the “repayment period”).  So, while employees would have more money in their paychecks now, their paychecks during the repayment period will be lower than normal.
  • Whether to defer this tax from employees’ wages is entirely up to the employer.

Now, what we don’t know:

  • What happens if an employer opts to participate in the deferral of the employee withholding in the covered period, but the employee is separated from employment prior to the repayment period?  Who is responsible for paying the deferred tax, the employer or the employee?
  • How will the deferral be reported?  Presumably, yet another new 941 form will be required beginning with the third quarter of 2020, but none has been released at this time.
  • How will employers’ payroll software track and report the deferral? 

Given the many unanswered questions, coupled with the fact that opting in will result in lower employee take-home pay in the first third of 2021, many employers have decided to opt out of participating.

Need help deciding how your business should proceed?  Give your LSWG accountant a call.

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