Source: La Mesa Chamber of Commerce
October 9, 2020 (La Mesa) -- The IRS issued guidance on President Trump’s payroll tax deferral to defer tax from September 1st until December 31st. This guidance includes the following highlights:
- Employers can defer the withholding, deposit, and payment of certain payroll taxes on wages paid from September 1st through December 31st.
- Interest penalties, and additions to tax will begin to accrue on unpaid taxes starting May 1st, 2021.
TO CLARIFY: the deferral is on the employee share (6.2%) of social security payroll tax. This is only a deferral; the guidance does not indicate taxes will be forgiven.
What determines if an employee is eligible for the deferral? Taxes may only be deferred for employees whose applicable wages are less than $4,000 on a bi-weekly pay period (or equivalent amount in other pay frequencies), the deferral eligibility is based on a pay period by pay period basis.
What’s the role of the employer? Employers are not required to offer the payroll tax deferral to employees. Employers are responsible for collecting and paying back any deferral taxes. Payments would be due between January 1, 2021 and April 30, 2021. Penalties and interest on unpaid amounts begin accruing May 1, 2021. It will remain the employer’s responsibility even if they are unable to collect the deferred amount from their employee(s).
Employees who partake in the payroll tax deferral will receive a temporary boost for the remainder of the year, but smaller paychecks early next year as employers withhold and pay the deferral amounts to the IRS.
The deferral applies to any employee whose pretax wages or compensation during any biweekly pay period generally is less than $4,000 – the equivalent of $104,000 a year.