Payroll Tax Deferral
“On August 8, 2020, the President of the United States issued a Presidential Memorandum directing the Secretary of the Treasury to use his authority pursuant to section 7508A of the Internal Revenue Code to defer the withholding, deposit, and payment of certain payroll tax obligations. Accordingly, the Secretary has determined that employers that are required to withhold and pay the employee share of social security tax under section 3102(a) or the railroad retirement tax equivalent under section 3202(a) are affected by the COVID-19 emergency for purposes of the relief described in the Presidential Memorandum. For Affected Taxpayers, the due date for the withholding and payment of the tax is postponed until the period beginning on January 1, 2021, and ending on April 30, 2021.
Applicable Wages or compensation paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020, but only if the amount of such 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.
The employer has the option to defer withholding of Social Security tax (6.2%) and Medicare tax (1.45%) of employees who earn less than $4,000 on a biweekly pay period basis. The deferral of taxes is for the time period beginning September 1 through December 31, 2020, but the employer must begin withholding the deferred taxes on top of regular FICA taxes beginning January 1, 2021 and April 30, 2021 or interest and penalties in addition to tax will begin to accrue on May 1, 2021. If necessary, the Affected Taxpayer may make arrangements to otherwise collect the total Applicable Taxes from the employee.”
Paradigm’s position is that uncertainties exist with the IRS guidelines such as who is responsible for the tax obligation if the employee terminates employment during the deferment period. Due to the upcoming election, it is difficult to anticipate forgiveness opportunities or obligations on the deferment. We continue to monitor the situation and will update this post if warranted.