Guidance Issued on Payroll Tax Deferral
Late Friday afternoon, the Department of the Treasury and IRS issued Notice 2020-65, which provides much needed guidance on the President’s payroll tax deferral announcement from August 8th. I’m sure most of you were busy hitting refresh on your browsers on Friday afternoon just waiting for this to drop, but for the rest of you, don’t worry, we’ve got you.
In case you were expecting some bombshell, you’re going to be disappointed. The guidance basically says what we thought was going to happen – if you want to defer withholding the employee portion of your payroll taxes for a few months, have at it. If you don’t, that’s fine too. Nothing in the notice seems to suggest that this is mandatory.
For those of you still interested, here are the details:
How much? The 6.2% EMPLOYEE portion of social security taxes withheld from employees’ wages (the employer portion is already deferred under the CARES Act). We knew this.
On what wages? All bi-weekly paychecks of LESS than $4,000. This means that the determination is made on a paycheck-by-paycheck basis. If you pay weekly, your number is less than $2,000. If you pay twice a month, your number is less than $4,333. Reminder – this is a cliff thing – not ratable. So once you hit your number, NO deferral is allowed on ANY of the wages for that pay check. This was helpful clarification.
For how long? Wages paid between September 1, 2020, and December 31, 2020. This is as expected.
How does it get paid back? Starting January 1, 2021, employers will be required to withhold and remit the unpaid taxes by May 1, 2021. This is new.
Sounds pretty simple, right? Honestly, it is, as long as you have the same employees making the same wages (or more) from January through April of next year as you did from September through December of this year. Only problem is, I can think of exactly zero employers who can be sure that they’ll fit neatly into that bucket. Remember, the responsibility is on the EMPLOYER to withhold and remit payroll taxes. So as the employer, if you don’t withhold and remit the tax, you’re on the hook next year.
Obvious problems are:
- What if an employee leaves?
- What if an employee can’t afford the double withholding from January through April?
- What if I have a seasonal employee who I know is only going to work for the holiday rush?
On the flip side, my question is, what if, by some freak event, these payroll taxes do get forgiven (as the President has touted as wanting to do) and I did NOT take advantage of the deferral? How do I get my money back? Granted, the chances of this are incredibly slim, but it shouldn’t go unmentioned.
One thing to note, it doesn’t look like an employer can withhold the taxes and simply not remit them until next year. I’m not a lawyer (not officially anyway), but the way I read the fine print is that this only defers the requirement to withhold the taxes – not the requirement to deposit taxes withheld. The employer’s obligation to remit withheld taxes arises upon the taxes being withheld. So, as long as you don’t withhold them, you’re good. Once you withhold them though, they must be remitted in the normal course of business.
So what do we do? I can’t answer that for you. I can say though that there are some mighty large holes in this plan, and I would advise companies to think long and hard about this before jumping on board.
We’re here to help, and would love to know what you have to say. You can contact me, Mark Heath, Partner and Director of Tax Services with McKonly & Asbury at mheath@macpas.com or by calling (717) 761-7910.
