In early August, President Trump signed an executive order creating a payroll tax holiday from September 1st to December 31st.
As part of the order, employers are not obligated to collect the social security contributions from employees’ payroll checks. This would result in a 6.2% “savings” to the employee. HOWEVER – this is only a deferral; the tax is still owed by every employee! The burden is placed on the employer to “hold” and then re-pay the tax.
The guidance from IRS has thus far been very vague. However, it appears that employees who defer the tax this year would be required to repay it over the first four months of 2021. You can read the official guidance from IRS here.
Is this a good idea to implement?
Paper Trails’ official position is that this is a bad idea for you to implement. It’s bad for employees and bad for employers. It’s never a good idea to owe the IRS money. The benefit of deferring the tax to next year is not valuable, especially given that we don’t know what the road ahead looks like for the winter. For the employer, the burden is placed squarely on your shoulders. You must track and then are responsible for repaying any deferrals that take place. We are strongly discouraging any of our clients from taking part in this program.
Who is eligible?
Employees who earn less than $4000 in a bi-weekly period are eligible to defer their payroll taxes – but that doesn’t mean they should!
Will employees or employers be penalized if they defer?
The IRS’ guidance and the President’s executive order specifically state that no penalties or interest will be applied to deferred tax.
Will these deferred amounts be forgiven?
The President does not have the authority to forgive these amounts. Congress must enact legislation to forgive any deferred amounts. So far, it does not apper that Congress has the appetite for this type of stimulus. Given the gridlock in Washington, it is highly unlikely that this deferral will be forgiven.