Deferral of Certain Employee Payroll Taxes Guidance from IRS

Thursday, September 3, 2020

On Friday, August 28, the IRS issued Discover 2020-65, offering steering concerning the deferral of sure worker payroll taxes beneath the President’s Government Memorandum issued earlier in August. As has turn into the norm in these unsure occasions, the steering have to be thought of fluid and topic to alter with out discover. The prevailing steering leaves many questions unanswered so we’ll proceed to watch this subject.

What Is the Worker’s Portion of the Payroll Taxes Topic to Deferral Below Government Memorandum and Discover 2020-65?

Along with earnings tax withholding, payroll taxes embrace Federal Insurance coverage Contributions Act (FICA) taxes. FICA taxes embrace old-age, survivor and incapacity insurance coverage (OASDI) (Social Safety) and hospital insurance coverage (Medicare). These payroll taxes apply at a price of 15.Three p.c for wages as much as $137,700 for the 2020 calendar yr. The duty for the FICA taxes are equally divided between employers and workers at 7.65 p.c, damaged down as follows: 6.2 p.c for Social Safety and 1.45 p.c for Medicare. Accordingly, for functions of the Government Memorandum and Discover 2020-65 the quantity topic to deferral is 6.2 p.c of the Social Safety taxes as the worker’s share.

What Is Recognized

Deferral of the worker’s share of Social Safety taxes seems to be voluntary by the employer based mostly on the language on this discover, Code Part 7508A, and prior statements made by Secretary Mnuchin. For the reason that deferral is voluntary, the employer might forgo the deferral and well timed withhold and pay over the required taxes.
The employer is the “Affected Taxpayer” beneath Discover 2020-65. Thus, an worker can not require its employer to defer the taxes.
The choice to defer applies to wages paid to an worker on a pay date through the interval starting September 1, 2020 and ending on December 31, 2020.
The choice to defer solely applies to workers incomes lower than $4,000 paid for a bi-weekly pay interval.
The willpower of whether or not the worker earns lower than $4,000 per bi-weekly pay interval is made on a pay period-by-pay interval foundation. Discover 2020-65
The employer should withhold and pay the deferred taxes beneath this discover ratably between January 1, 2021 and April 30, 2021 or curiosity, penalties, and additions to the tax will start to accrue on Could 1, 2021, with respect to any unpaid relevant taxes. Discover 2020-65
“If essential, the Affected Taxpayer [Employer] might make association to in any other case accumulate the entire Relevant Taxes from the worker.” Discover 2020-65. Implies the penalties will likely be assessed towards Employer because the Affected Taxpayer as outlined by the steering.

What Is Not Recognized

What if the worker leaves the corporate?
What if worker doesn’t make sufficient cash to pay the tax again?
It seems that the duty to pay the deferred taxes stays with the employer in both scenario above.

Absent additional steering or congressional motion, the deferred taxes have to be withheld from the worker’s wages and paid over to the federal government between January 1, 2021 and April 30, 2021. Employers who’re contemplating permitting workers to defer cost of taxes ought to seek the advice of counsel and develop a plan to implement earlier than ceasing to make deductions. Issues for the plan ought to embrace an worker communication plan developed to deal with worker cost obligations after the deferral interval expires or if the worker turns into now not employed by the employer. As well as, the plan ought to have in mind whether or not workers are coated by a collective bargaining settlement that triggers discover and bargaining obligations. Additionally, understand that Michigan employers should have signed authorization from the worker to make deductions from wages. Employers ought to think about acquiring written authorization from qualifying workers who elect to defer that features the plan to repay the deferred taxes and a backup in case the worker ceases to be employed earlier than the taxes are paid.