September 2, 2020
President Trump’s Payroll Tax Deferral Executive Order
The IRS issued Notice 2020-65 to clarify the Executive Order to allow employers the option to temporarily defers the collection and payment of certain payroll taxes. The order allows employers to postpone the collection and remittance from now through year-end
This deferral of social security withholdings(6.2%) is allowed only if the wages of the employee are less than $4,000 per bi-weekly period and extended to other pay periods as well ($104,000 annually; $4,333 semi-monthly; $6,667 monthly; or $2,000 weekly). This is determined each and every pay period.
Employers must collect and remit the deferred taxes ratably from January 1, 2021 until April 30, 2021.
Our Recommendation: Given the seasonality of most of our employers, we believe this action would place an unnecessary financial hardship on the employers during the first quarter of 2021. If an employer defers collection and an employee quits, is laid off or has a reduction in hours before April 30, 2021, the employer may be required to pay the employee taxes, since there would be insufficient wages from which to collect. There's no guarantee that the employer’s cash flow will be better as a result of this deferral because amounts are relatively small and the deferral period is relatively short.
Ultimately the burden for collection and remittance falls on the employer. For that reason, we recommend that you ignore the Executive Order and continue to collect taxes and remit to the IRS on your normal schedule.
Please contact us if you would like to discuss this further.
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