Payroll Tax Holiday
President Trump signed an executive order on August 8, 2020. This order postpones the deduction and deposit of Social Security tax collection from individuals making $4,000 or less on a bi-weekly basis. It also includes salaried workers earning $104,000 or less.
This order is in effect from September 1, 2020 through December 31, 2020.
Executive Order Stipulations
- Employers may defer the employees’ share (6.2%) of Social Security tax on any wages up to $4,000 paid bi-weekly.
- The limit of $4,000 should be applied on a pay period by pay period basis without regards to amount paid in prior pay periods.
- Companies that suspend the collection of payroll taxes will collect the deferred amounts from workers’ paychecks starting January 1, 2021, through April 30, 2021 and remit to the IRS before May 1, 2021. (This means employees will pay double for the 1 quarter of 2021.)
- After April 30, 2021, employers are responsible for penalties, interest, and any additions to taxes that have not been repaid by employees.
- Employees must understand that this is not a tax forgiveness, but just a delay in tax payments until April 30th, 2021.
What Notice 2020-65 Made Clear
- Employers are responsible for withholding and paying back any deferred taxes. This puts them at significant risk if they cannot collect those funds from employees who terminate.
- Notice 2020-65 is not an elimination of payroll taxes nor a payroll tax cut, instead it is a postponement of payroll taxes for the last four months of 2020.
The CDC suggests using a time-based approach to ending quarantine, such as 14 days from exposure, over a testing requirement.
Most people with COVID-19 have mild illness, can recover at home without medical care, and can follow CDC recommendations to determine when to discontinue home isolation and return to work.
The IRS does not explicitly say that employers must participate. (This means your company has the option to opt.)
Companies that do participate may give employees the choice of opting into the deferral.
Employers can discuss with employees whether the deferral would cause undue hardship in 2021. The repayment would mean a lesser amount of net pay for the employee which could result in more financial stress versus the benefit the deferral may provide now.
If you have any questions regarding these CDC updates, please, contact a MEND representative here.
We are here for you and your business.
By Angela Prescod