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On Aug. 8, 2020, President Donald Trump ordered the U.S. Department of Treasury (the Department) to defer collecting certain payroll taxes from wages earned between Sept. 1 and Dec. 31, 2020. On Aug. 28, 2020, the Internal Revenue Service (IRS) issued Notice 2020-65 (the Notice) to provide employee payroll tax deferral guidance for affected employers. Employer participation in these deferrals is permitted, but not required.
Eligibility for Deferred Payroll Taxes
The Notice releases employers from their obligation to collect and pay payroll Social Security and Medicare taxes for individuals who receive applicable wages, defined as compensation that is less than $4,000 for a biweekly pay period, or “the equivalent threshold amount with respect to other pay periods.”
Employers must determine whether applicable wages exist every pay period between Sept. 1 and Dec. 31, 2020.
Recoupment of Payroll Taxes
The Notice informs employers that any taxes deferred between Sept. 1 and Dec. 31, 2020, will need to be collected and remitted to the IRS between Jan. 1 and Apr. 30, 2021, unless the Department can find an avenue to eliminate the obligation to pay the deferred taxes. Interest, penalties and additions to tax will begin to accrue on May 1, 2021, for any unpaid deferred taxes.
Employers will need to pay these deferred taxes in addition to collecting and remitting the taxes that regularly become due during the Jan. 1 to Apr. 30 pay period.
The Notice also explains that employers will be allowed to make arrangements with affected employees to collect deferred taxes in 2021.
Next Steps for Employers
Agency Guidance
Employers should review the IRS guidance carefully to understand deferment requirements.
Implementation Concerns
Employers must determine whether they will participate in tax deferment for eligible employees between Sept. 1 and Dec. 31, 2020.
Risk Assessment
Employers should balance the benefit of releasing affected taxes to eligible employees against the possibility of having to recoup those taxes later. For example, if an employee defers in 2020 but leaves the company before 2021, the employer is still responsible for those deferred taxes.
Review Payroll Processes
Employers should take time to evaluate now how quickly they can alter their payroll practices and procedures to defer and later collect affected payroll taxes.
GTM will continue to monitor this issue and will provide updates as more guidance is released.
The isolved payroll system, part of GTM’s human capital management solution, stays up to date with legislative changes so you can easily make adjustments before processing payroll. And because your data is secure in the cloud, you have 24/7 access from wherever you are. Request a free quote to learn more.
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