The Treasury Department released guidance the evening of Friday, Aug. 28, 2020, on the “payroll tax holiday” provided by the Aug. 8, 2020, presidential memorandum. Notice 2020-65 requires the deferred taxes to be repaid ratably over the first four months of 2021, but provides virtually no answers to the many questions employers have been asking about the related compliance and other issues (see our previous tax alert). Most importantly, it appears to leave employers responsible for collecting the taxes from employees in 2021 and implies they must recoup deferred liabilities from those employees who have departed prior to or during the collection period. Unfortunately, the notice offers no direction as to how this should be done.
Under the notice, the date by which employers must withhold and pay Social Security taxes for workers earning less than $4,000 per biweekly pay period is postponed. An equivalent threshold applies with respect to other pay periods; for example, employees receiving weekly paychecks would instead use a $2,000 threshold. Further, the determination of whether an employee is eligible is made on a pay-period-by-pay-period basis. In other words, if an employee earns $3,500 in a given pay period, the Social Security tax otherwise due on those wages could be deferred, despite the fact that same employee earned $5,000 in the previous pay period.
Payroll taxes that otherwise must be withheld and remitted to the government between Sept. 1, 2020, and Dec. 31, 2020, are now due between Jan. 1, 2021, and April 30, 2021. Interest, penalties or additions to tax will accrue on any unpaid amounts starting May 1, 2021.
We urge employers to use caution before enacting this program due to the uncertainties that surround it.
Please contact your Baker Tilly tax advisor with questions on how the above affects your tax situation.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.