On Friday August 28th, the IRS issued additional guidance on the employee payroll tax deferral effective from September 1st through December 31, 2020. This tax deferral was put in place by President Trump's executive order on August 8th.
Three things to be aware of:
1) This deferral is NOT required but encouraged to give employees extra pay by not withholding the 6.2% federal taxes for the rest of 2020.
2) Employee pay is eligible for tax deferral only if the amount of wages or compensation paid for a bi-weekly pay period is less than the threshold amount of $4,000, or the equivalent threshold amount with respect to other pay periods. The determination of Applicable Wages is made on a pay period-by-pay period basis.
3) The employer is ultimately responsible for collecting these deferred taxes during the period between January 1, 2021, and April 30, 2021. If necessary, the employer may make arrangements to otherwise collect the total Applicable Taxes from the employee.
Number three is the big one - if an employee leaves your company and the employee has deferred taxes, the employer (not the employee) is responsible for paying back these deferred taxes in 2021. The employer can make other arrangements to collect these payments but it is up to the employer to work out these arrangements.
Also, in 2021, the employee's paycheck will be less due to taking back this additional deferral. Employers need to be very clear with employees how this will work and that their paychecks will be lower beginning January 1st, 2021.
President Trump is asking Congress to make this deferral a permanent credit but it is unclear if this will happen.
Unless you feel employees need this extra cash this year, and you are confident that they are clear their 2021 paychecks will be lower to start the year, AND you are confident you can collect this deferred pay back from the employee, then you can take advantage of this deferral.
If you need to talk through specific options for your business, Molly, Paula, Myra, and I are here to help. Schedule a 30 minute consultation via Zoom where we will discuss your specific business situation for only $49. If you have any questions, feel free to reach out to any of us or email PPPHelp@EDGeBusinessPlanning.com. And keep checking our emails, blog, and social media for updates.
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