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Please note that this blog is based on laws effective in August 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
On August 28, the Treasury Department issued guidance regarding the deferral of payroll taxes going into effect on September 1, 2020. The guidance was a result of President Trump’s Executive Order issued on August 8.
For the period between September 1 and December 31, 2020, employers can opt out of withholding the 6.2% payroll tax that is the employee’s share of Social Security taxes. The deferral is only available to employees that earn less than the equivalent of an annual salary of $104,000. If the employer chooses to defer collection, the taxes would then be due no later than April 30, 2021.
Mechanically, this would mean that if an employer opts in to the deferral program, employees would see an increased paycheck for the remainder of 2020. However, because the taxes are due in early 2021, employees would need to repay the deferred taxes to make the government whole. The net effect of this provision is a short-term, interest-free loan to employees.
The guidance does not speak to the effect of an employee leaving the company after having deferred taxes other than to indicate that if necessary, an employer can make “arrangements” to collect the taxes from the employee.
Complicating matters further, President Trump has indicated that if re-elected, he will forgive the deferred taxes. Forgiveness was not addressed in the guidance, as only Congress can take action to allow for forgiveness.
If you would like to discuss whether your company should opt in to the payroll tax deferral program, please call Cray Kaiser today at 630-953-4900.