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AICPA requests guidance on payroll tax deferral

By Alistair M. Nevius, J.D.

3 hours ago

"The AICPA on Wednesday sent a letter to Treasury and the IRS requesting guidance on the recent presidential memorandum deferring some employee payroll taxes until next year. The memorandum, issued by President Donald Trump on Saturday, defers the withholding, deposit, and payment of the employee portion of the old-age, survivors, and disability insurance (OASDI) tax under Sec. 3101(a) and Railroad Retirement Act Tier 1 tax under Sec. 3201 for any employee whose pretax wages or compensation during any biweekly pay period generally is less than $4,000. It applies to payroll taxes on wages paid from Sept. 1 through Dec. 31, 2020.

The AICPA’s letter, addressed to David Kautter, Treasury’s assistant secretary for tax policy, and Charles Rettig, IRS commissioner, requests guidance on several issues related to how the deferral will be implemented.

Specifically, the AICPA asks for guidance:

Stating that an eligible employee is responsible for making an affirmative election to defer the payroll taxes;

Stating that an eligible employee can make an affirmative election at any time from Sept. 1, 2020, to Dec. 31, 2020, and if an employee does not elect to defer Social Security taxes, taxes will continue to be withheld, deposited, and paid;

Stating that an “eligible employee” is an employee whose wages are less than $4,000 (or equivalent amount depending on the employer’s pay period) per biweekly period."

Providing a model notice for employers to furnish to eligible employees to inform them that the election to defer Social Security taxes is available for the Sept. 1, 2020, to Dec. 31, 2020, period;

Stating that the payroll amount used to determine eligibility is a cliff; if the wage amount for a specified pay period is above $4,000 or the equivalent amount based on the employer’s regular payroll periods, no deferral is permitted;

Stating that the $4,000 limit should apply separately to each employer of an employee;

Stating that it is the responsibility of the employee and not the employer to pay the deferred payroll taxes;

Stating which penalties are waived as a result of this deferral, including the penalty applicable to responsible parties;

Addressing whether the increase in take-home pay attributable to the deferred taxes can be used to satisfy other employee obligations such as Sec. 401(k) loan repayments, garnishments, and child support payments; and

Stating a payment due date(s) for the deferred taxes and a mechanism for employees to pay the deferred taxes."

At first it was thought that employers would have recapture the deferred tax from employees beginning with paydates after 12/31/20,

which raises a lot of questions about employees leaving, new employees arriving etc, etc, etc!

Now after a whirlwind of discussions between Payroll Companies, Employers, the Treasury Dept and the IRS, it is now likely that employees would be required to pay back

the tax deferred when they file their Form 1040 on April 15th.

  Are we having fun yet 🙈

I am really glad I don't do a lot of 1040s!

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Copied from Accounting Today:


"Employers wait for guidance on payroll tax deferral


Roger Russell

August 18, 2020

In what amounted to an end run around Congress, President Trump signed a series of executive memorandums and an executive order on Aug. 8, 2020, to address issues left unresolved by the congressional failure to agree on additional bipartisan stimulus legislation.

“It’s actually a memorandum rather than an executive order,” observed Mark Luscombe, CPA and principal federal tax analyst for Wolters Kluwer Tax & Accounting. “The difference is not legally significant. An executive order gets published in the Congressional Record.”

While three of the executive actions are not tax-related — addressing enhanced unemployment payment, eviction moratoriums, and student loan relief — the fourth defers payroll taxes from Sept. 1, 2020, to Dec. 31, 2020. “There were three presidential memoranda and one executive order,” said Luscombe. “The order was the one relating to evictions.”

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“The president has been pushing for forgiveness of payroll tax for some time, but neither Republicans nor Democrats were in favor of it because it doesn’t provide much immediate help, just a gradual benefit over time," Luscombe continued. "They would prefer a stimulus with more of an immediate benefit, but Trump went with a payroll tax deferral because that’s all he felt he could do with executive action without congressional involvement.”

“The administration felt it only had the power to issue a deferral, not a forgiveness,” Luscombe said. “The memorandum only applies to the 6.2 percent employee’s share of Social Security taxes. It does not apply to the 1.45 percent employee’s share of Medicare taxes.”

In addition, the memorandum only applies to biweekly income under $4,000 or less, which translates to annual income of $104,000, he said: “Some commentators have pointed out that if your salary is variable, you could end up being eligible even if your income for the year ends up being higher than $104,000.”

Since the memorandum constitutes just a deferral, will someone have to pay the piper come January?

“It’s likely that this would have to start to be repaid in January,” Luscome said. “The Treasury is expected to issue guidance on how the deferral will work and address several uncertainties. A lot of employers are waiting for the guidance to be issued.”

“Many employers are concerned about implementation because it’s just a deferral,” he said. “There could be a double withdrawal from employees’ paychecks in 2021. That would be a burden on employees if Congress doesn’t get around to enacting forgiveness.”

It’s not currently clear if employers will start deferral immediately, according to Luscombe. “Most employers think the executive memorandum is optional, not mandatory,” he said.

“Some employers are worried that employees are not prepared for a future reduction in their paychecks,” he said. “They’re also concerned about getting their systems revised to take care of withholding. And if employees leave between now and the end of the year, will the employer be required to recoup the money out of their own pockets if they can’t get it from the employees starting in January?”

The “Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster” directs the secretary of the Treasury to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.”

“Most people think the direction on forgiveness can only be accomplished by congressional action,” said Luscombe. “It’s likely we will get guidance from the Treasury pretty quickly because of the Sept. 1 start date."


What a mess!

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Of my customers who have inquired, or responded to my email, only one was actually thinking they needed to do something.  All others are planning on not deferring, unless there is absolutely no option.  Their concern is the simple one, since it is a deferral, they should hold the money anyway (since it is not theirs to use!), so there is no point in deferring.  Those who are still in business do not need to defer for three months, and they are worried about the cost of managing the deferral.  If there comes a point where there is forgiveness, most figure they will be able to get a refund or credit on a future return.

The rub for the employers is dealing with employee inquiries.  So far, the employees, except for the obstinate ones, seem to be satisfied with the answer of "until more details are released", "unless the deferral is a requirement", etc.

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Apparently the Treasury Secretary has been receiving heavy pressure from businesses to resolve this SNAFU,

because he was quoted today as saying, that business participation in the payroll tax deferral would be optional!

I don't even know what to say ?


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When the treasury lead says it is optional, and with no apparent rush to put out directions for employers and employees, the only conclusion is it is much ado about nothing.  Unless it is not optional;, I see no reason to modify my software.  Those that want to take the risk and defer can already do so my manually changing the calculated value.  I do not want to make it easy for an employer to get into a debt situation.  The one piece which struck me is how employers are required to withhold (existing rules), and how the memo only offers deferral of payment.

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Copied from Accounting Today:

"The U.S. Treasury Department still has yet to tell companies how to handle President Donald Trump’s order delaying the due date for employee payroll taxes, leaving major employers like Walmart Inc. in the lurch.

It’s been two weeks since Trump issued his directive deferring the deadline to pay worker’s portions of Social Security taxes from Sept. 1 through the end of the year. But employers, who are responsible for submitting those payments to the Internal Revenue Service, are waiting to hear from the agency on how any tax bill would be handled when it comes due later.

“I don’t think there is a bloody chance that, at this point, anybody is implementing anything before Labor Day,” said Adam Markowitz, an enrolled agent and vice president at Howard L Markowitz PA CPA.

The Treasury and IRS didn’t respond to requests for comment on when the guidance would be published.

Some companies have already shied away from the payroll tax deferral, which Trump touted as a boost for workers as the economy reels from the coronavirus pandemic, because the taxes would ultimately have to be paid unless Congress acts to forgive the liability.

Large employers including Walmart, Macy’s Inc. and Procter & Gamble Co. have said they need more details from the IRS. They didn’t immediately respond to a request to comment on whether they would implement the deferral if the IRS didn’t issue any rules by the Sept. 1 start date. The U.S. Office of Personnel Management didn’t respond to a question about whether it plans to defer taxes for federal employees.

“Companies cannot do anything until there is guidance,” Veena Murthy, a principal at accounting firm Crowe LLP, said. The order “requires Treasury and IRS to provide some way it can be done. In this case particularly, there really are no answers.”

Payroll software providers need time to update their systems, and they can’t do that without guidance from the IRS and Treasury, Markowitz said. And companies have learned the hard way about claiming benefits before having sufficient guidance, he said.

Following enactment of the last coronavirus stimulus legislation in March, some businesses quickly took advantage of loans under the Paycheck Protection Program but later found, after guidance was issued, that it might have been in their best interest to ditch the loans in favor of other tax credits or grants, he said.

The U.S. Chamber of Commerce has said that many companies are unlikely to implement the deferral, even with the IRS guidance, because it forces a large tax bill on employees in the future and would be very difficult for employers to administer.

“Further, the lack of concrete guidance on the most basic of implementation issues presents an untenable situation, making it basically impossible for employers to implement this EO and leaving little choice but for those employers to continue remitting payroll taxes to the Treasury,” Caroline Harris, the Chamber’s chief tax policy counsel, said in a statement.

Treasury Secretary Steven Mnuchin has said he can’t force companies to implement the deferral, but said he hopes many companies will participate. Trump has said he would forgive the tax bills if he’s elected to a second term, but that would require participation from a Congress that has been hesitant to cut the funding source for Social Security.

The onus is now on employers to provide explanations to their workers about why the company isn’t implementing the deferral and they should prepare to face a potential backlash from employees, Markowitz said.

The average employee isn’t going to understand, nor care, that there isn’t any IRS or Treasury guidance, he said. “They’re just going to say, ‘Hey, Trump said I should have 6.2 percent more in my paycheck every week and I don’t."

I haven't had any payroll clients ask about this yet🙃

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6 minutes ago, cbslee said:

I haven't had any payroll clients ask about this yet

You probably will, once the first checks dated on or after Sep 1 are released, and the employees start asking their employers for the extra money, and the employers pass the buck to you.

I have thousands of customers.  Only one proactively asked, and it was from their personal paycheck perspective (owner/employer) as to how they should setup to get a larger paycheck.  The others who have taken notice and contacted me have agreed, "much ado about nothing", until the employees start griping about their "missing" 7.45% "raise".  While I have not completely formed a possible notice for employers to share, I expect to have to do so, to help employers not have to waste time answering the same questions over and over, and try to focus on staying viable.

I have a slight hope employees, as a rarity, might just accept their employer is acting properly, given the situation, but I know better, and many employees will you know what and moan about their missing 7.45%.

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"WASHINGTON — A debate between the White House and the Treasury Department over President Donald Trump’s payroll tax suspension has delayed crucial information about how the executive order will be carried out, according to people familiar with the matter, leaving businesses across the country uncertain about how to proceed."

.  . . . . . .

"The White House, which is eager to push through a tax cut before the November election, wants the Treasury guidance to ensure that companies, not workers, are held liable for paying the employee portion of the tax when the tax holiday ends."  Even for a modest sized small business this could be tens of thousands of dollars of extra payroll tax!

No wonder 30 business groups including the US Chamber of Commerce are strongly opposing the payroll tax deferral.

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