The current status of business payroll tax deferral
On August 28, the IRS and Treasury published Notice 2020-65, which provided guidance for employers on President Trump’s executive order on payroll tax deferral. An executive order signed by President Trump in early August provides a payroll tax holiday for American workers that can be implemented starting today.
Mnuchin’s Remarks On The Payroll Tax Deferral
Treasury Secretary Mnuchin reportedly said in an interview on August 12 that any such deferral will be optional for the employer and not mandatory, it is unclear how to make any such election. The timing and manner of collection of any FICA Withholding Taxes that are deferred and will be due in 2021 (absent further action), including whether an employer will be liable for any such amounts that an employee fails to repay, also need to be confirmed.
Below, is an executive summary of the items that matter most to businesses, put together by CalCPA:
- The due date for the withholding and deposit of employee FICA old-age, survivors and disability insurance taxes (6.2%) on wages paid beginning September 1 and ending on December 31 is postponed until early 2021.
- Only FICA taxes on wages below $104,000 annually (or $4,000 per bi-weekly pay period or equivalent for other pay periods) are eligible for the deferral. No pro-rata deferral is permitted if wages are above the threshold.
- The wage threshold is determined on each pay period irrespective of any other pay period.
- Deferred taxes must be collected ratably by the employer beginning on January 1 through April 30, 2021, and deposited accordingly.
- Only the time for withholding the taxes has changed pursuant to the Notice, not the deposit timing rules. However, the deposit timing rules only take effect once the taxes have been withheld.
It is not clear from the published guidance whether this is optional on the part of employers, or whether employees can compel their employer to defer the tax. Similarly unclear is what would happen if an employee terminated before the tax was withheld.
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The California Society of Certified Public Accountants (CalCPA) (www.calcpa.org) is the nation’s largest state professional non-profit association representing more than 45,000 certified public accountants (CPA) and has one of the nation’s largest representation of CPA tax professionals.