PODCAST: Employee Payroll Tax Deferral Executive Order Update

Published on: 09/04/2020 By: GSG

GSG’s latest podcast features Tax Director, Matt Keefer, who explains the recent updates released by the IRS on the employee payroll tax deferral executive order.

On August 31st, the IRS issued updated guidance on the presidential executive order regarding the employee payroll tax deferral.

The order defines the period from September 1, 2020 through December 31, 2020 for which it allows the deferral of withholding and payment of employee social security taxes from wages.

The deferral is only available for those employees whose taxable wages for a bi-weekly period are $4,000 or less. The wage test is made on a pay-period-by-pay-period basis, so a single employee may be eligible for the deferral one pay period but not the next.

Any employee social security taxes deferred will need to be withheld and paid during the period of January 1, 2021 through April 30, 2021. Unpaid taxes as of May 1, 2021 will begin to accrue interest and penalties, meaning employees should be prepared to have double the Social Security tax withheld during that period.

Limited guidance has been provided in regards to employees who do not have sufficient wages for the additional withholding for the period January 1, 2021 through April 30, 2021. Also, there is limited guidance for employees no longer employed after December 31, 2020.

The guidance only provides that employers may make “other arrangements” with employees to collect the deferred taxes. However, no further details are yet provided to clarify “other arrangements.”

The initial IRS guidance did not indicate that deferral was optional for employers, but the IRS has since confirmed that the deferral is optional for employers. Thus, employers should consider the pros and cons of the relief, as they are not required to utilize it.

As always, the tax landscape is ever-evolving, so be on the lookout for further guidance or changes, and contact us with any questions.

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