New IRS Guidance related to employee payroll tax collection has been issued to allow for deferral of payroll taxes through the end of 2020 in an effort to provide income relief to those employees who have been impacted by COVID-19.
Notice 2020-65 was issued on August 28, 2020 allowing employers to suspend withholding and paying to the IRS eligible employees’ Social Security payroll taxes. The payroll tax “holiday,” or suspension period, runs from September 1 through December 31, 2020, and applies only to employees whose wages are less than $4,000 for a biweekly pay period, including salaried workers earning less than $104,000 per year.
Those who elect to have their taxes deferred or suspended, however, would potentially make up for it by repaying their tax obligations on their paychecks from Jan. 1 through April 30 next year. President Donald Trump sent a memorandum on Aug. 8 to the Treasury Department to defer collection of the employee portion of Social Security from Sept. 1 through the end of 2020. Limited guidance has been issued related to this tax holiday, leaving many unanswered questions by employers related to compliance and reporting. Based on the language in the Notice, and that it does not include any penalties for employers who don’t comply, the directive at this point seems voluntary. If employers suspend Social Security payroll tax withholding for eligible employees, the guidance does not provide for allowing individuals to opt out, which is only one of the administrative concerns employers have over these changes.
Employers are hesitant to make such swift changes and question whether to suspend now or continue collecting tax withholdings. The payroll tax holiday is not mandatory, so employers do not need to participate. To implement such a change would require adjusting payroll systems, which is not often an easy and simple task to complete. It would also require clear communication to employees to ensure they understand the likelihood of repayment early next year, which in the long run for some employees could essentially create additional financial concerns.
With so many uncertainties, some companies are choosing to stay the course and wait until further information and instruction is available. However, the downside to not opting in immediately, however, may be risking employees “losing out” on potential financial gain if later it’s determined these deferrals are forgiven. For support and guidance on these payroll tax holiday implications to your business, contact JB Consulting Systems at HRhelp.