On Aug. 8, 2020, the President issued a memorandum directing the Secretary of Treasury to use his authority to defer certain payroll taxes. On Aug. 28, 2020, the Treasury and the IRS issued guidance related to the President's payroll tax deferral program. This guidance provides the following insights:
Employers may elect to defer withholding and paying the employee portion of Social Security payroll for certain employees.
The program is only eligible for employees with compensation less than $4,000 pre-tax in any bi-weekly pay period, or an equivalent amount with respect to other pay periods.
This determination is made on a period-by-period basis.
This deferral applies to compensation paid from Sept. 1, 2020, through Dec. 31, 2020.
The deferred tax repayment period is Jan. 1, 2021, through April 30, 2021, with penalty and interest beginning to accrue May 1, 2021.
Election to participate in this program is made by the employer.
The employer is ultimately responsible for remitting the tax during the repayment period regardless of whether the tax is actually withheld or otherwise collected from the employee. This has the potential to result in additional out of pocket costs for the employer in the case of employees who leave employment prior to the end of the repayment period and who do not otherwise reimburse the employer.
Given that participation in this program is voluntary, before choosing to participate in this payroll tax deferral program, an employer should determine if they are comfortable with being liable for repayment of the deferred taxes without being reimbursed by the employee, since it may be difficult to seek reimbursement for the tax from a former employee.
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