Dear Clients and Friends,
The President’s recent executive action called for a payroll tax deferral for employees effective Sept 1 through year end. Employers would stop withholding the 6.2% FICA (aka social security) portion on employee paychecks. To get the deferral, employees must earn less than $4,000 every two weeks (equates to $104,000 annual salary).
However, unless Congress votes later to forgive the taxes, these taxes will need to be paid back by April 30, 2021. IRS issued guidance Friday that requires employers to withhold the deferred taxes each pay period starting Jan 1, 2021 through next April 30, meaning that workers will have double the deduction taken from their paychecks next year to pay back the deferred portion. If employees left their company, the employer could make arrangements to collect the total taxes owed from the employee, for example, by withholding them all from the employee’s final paycheck.
This new IRS guidance puts the responsibility squarely on employers for ultimately paying back the payroll taxes. That could cause many companies to decline putting the extra money in workers’ paychecks- killing any potential economic boost Trump hoped to trigger.
Employers cannot be forced to stop withholding this payroll tax. They elect in or out. Among the unresolved issues with Friday’s IRS guidance include what employers should do if employees quit before the end of the year. The US Chamber of Commerce has said that many companies won’t elect in and implement the deferral, because of difficulties administering it and the greater burden for employees next year. And there’s little time for companies to decide whether to go ahead and reprogram payroll systems to accommodate these changes, with Sept. 1 upon us.
So, critical questions remain unanswered. ‘Tis the year 2020. Please contact me with questions.
Take care,
Eric
Eric Johnson, CPA
Tel. (702) 941-7787
Eric Johnson CPA LLC
2850 W Horizon Ridge Pkwy #200
Henderson, NV 89052
Near I-215/Eastern Ave. exit; only 2 miles via Eastern to Coronado Center at W. Horizon Ridge. The “Regus” building.