September 2, 2020
Dear Clients & Friends,
We hope that you are doing well during these strange times. As most of you are aware, our office has remained open and we are here to answer any questions you may have. We are working diligently preparing tax returns and assisting our clients throughout the COVID-19 pandemic. We are also addressing any new legislation that is passed in response to the pandemic and are here to advise our business clients on these new provisions.
On August 8, 2020, President Trump issued a Presidential Memorandum (Notice 2020-65) directing the Treasury Secretary to use his authority to defer withholding, deposit and payment of the employees’ portions of Social Security tax (6.2%). The notice allows employers to defer withholding on affected employees’ compensation during the last four months of 2020 and then withhold the deferred amounts during the first four months of 2021.
The deferral applies to any employee whose pretax wages or compensation during any biweekly period is generally less than $4,000. Under the Notice, the determination of application wages is to be made on a pay-period-by-pay-period basis – meaning that if the amount of compensation payable to an employee for a particular pay period is less than the threshold amount, then the payroll deferral applies to that compensation, irrespective of the amount paid to that employee in other pay periods.
While the goal is to put more money in the pockets of workers during the COVID-19 pandemic emergency for the last four months of 2020, the deferred amount will need to be repaid and will be withheld from the employee’s paychecks in addition to the normal withholding in the first four months of 2021.
The Notice places the responsibility on the employer to make payment of the deferred payroll taxes by May 1, 2021. Otherwise, the employer will be subject to penalties, interest, and additional tax. This may create a problem if an employee no longer works for the same employer in 2021. The employer won’t be able to withhold the deferred taxes if the employee no longer works for them. As of right now, the Notice does not give other guidance on this other than that the employer may make other arrangements to collect the total deferred taxes from the employee, not specifying what those arrangements should or could be.
The President has indicated that he would like the deferred taxes permanently forgiven, but it would take congressional approval to change the law, and given the highly charged political climate in Washington, that may not happen. We are advising our clients to not utilize this provision because we believe it will cause a hardship to employees in the first quarter of 2021.
We are here to assist you during this time. Please call the office if you have any questions regarding the information contained in this letter.
Robert G. Starkey, CPA