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PAYROLL TAX DEFERRAL GUIDANCE ISSUED


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"Late on Friday, the IRS issued much-anticipated guidance on the payroll tax deferral that was ordered by President Donald Trump in a presidential memorandum on Aug. 8 (Notice 2020-65). The notice allows employers to defer withholding on affected employees’ compensation during the last four months of 2020 and then withhold those deferred amounts during the first four months of 2021

Under the guidance, employers can defer the withholding, deposit, and payment of certain payroll taxes on wages paid from Sept. 1 through Dec. 31, 2020. The deferral applies to 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. The due date for withholding and payment of these taxes is postponed until the period beginning Jan. 1, 2021, and ending April 30, 2021.

The deferral applies to any employee whose pretax wages or compensation during any biweekly pay period generally is less than $4,000. The notice defines applicable wages, for these purposes, as:

wages as defined in [Sec.] 3121(a) or compensation as defined in [Sec.] 3231(e) 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.

Amounts excluded from wages or compensation under Secs. 3121(a) or 3231(e) are not included when determining applicable wages.

Under the notice, the determination of applicable 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 ($4,000 for biweekly pay periods), then the payroll tax deferral applies to that compensation, irrespective of the amount paid to that employee in other pay periods.

The notice requires affected employers to withhold and pay the deferred taxes from wages and compensation paid during the period between Jan. 1, 2021, and April 30, 2021. Interest, penalties, and addition to tax will begin to accrue on unpaid taxes starting May 1, 2021. The notice says, that, if it is necessary, employers can “make arrangements to otherwise collect the total Applicable Taxes from the employee” but does not provide details on that requirement.

The AICPA, in a letter to Treasury and the IRS on Aug. 12, asked for guidance on many open issues regarding the implementation of the presidential memorandum."

In the second sentence the verb "allows" is used not "requires". In the third sentence the verb "can" is used not "must" so it appears that employers compliance is "optional".

Then any tax deferred must be collected from the employee(s) from January 1, 2021 thru April 30, 2021. As of May 1, 2021 any uncollected tax starts accruing penalties and interest..

 I am sure everyone's payroll software will be reprogrammed and ready to go on Tuesday morning.🤪 I will be I will strongly advising my clients not to participate.

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Who would do this?  This sounds like a nightmare for employers.  If an employer withholds the tax and the employee finds out he could have it deferred, he'll demand the employer not withhold.  Then he gets hit with the additional withholding Jan-April?  Am I reading this correctly?  And I assume the employer still has to pay his portion?  Or can the employer defer payment of his portion too?

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I don't do payroll.  But I do a few quarterly payroll returns (and year end W2s) for a few clients who do their own payroll.  And I have a few S Corps whose only payroll is for themselves as shareholder.  I won't recommend any deferral for these clients.

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1 hour ago, Lion EA said:

Deferral is for the employEE portion only.

That's what I thought.  I assume it is at the employee's option.  So the employer would be obligated to inform the employee of the option.  How many will jump for the extra money up front and get killed in January?

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That's sound even stranger.  Is it deferral of the withholding or deferral of the deposit and payment to IRS?  If deferring the withholding, it would directly affect the employee's net pay.  I would think the employee would have a say in that.  If withholding is done and employer defers the payment to IRS, it would be money in the employer's pocket (at least temporarily).  Either way, it sounds absurd and bizarre.

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"The Internal Revenue Service said companies will be responsible for collecting and paying back any deferred payroll taxes under a directive by President Donald Trump aimed at helping workers while the administration and Democrats are stalemated on a stimulus deal.

The agency issued guidance Friday that implements Trump’s order to delay the due date for payroll taxes for millions of workers from Sept. 1 through year-end. Come next year, the taxes will need to be paid by April 30, however — unless Congress votes to forgive the liabilities, the release showed.

If lawmakers don’t step up, the guidance says employers must withhold the taxes from employees from Jan. 1 through April 30, meaning that workers will have double the deduction taken from their paychecks next year to pay back the deferred portion.

Employers “may make arrangements to otherwise collect the total applicable taxes from the employee,” if necessary, the release said.

The guidance puts the responsibility on employers for ultimately paying back the levies, and that could cause many to decline putting the extra money in workers’ paychecks — blunting any potential economic or political boost Trump had hoped to reap."

This clearly puts the responsibility on the employer to collect all of the deferred taxes plus the responsibility for paying any uncollected deferred taxes.

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2 hours ago, Randall said:

. . . .   I would think the employee would have a say in that.  If withholding is done and employer defers the payment to IRS, it would be money in the employer's pocket (at least temporaril). . . . .

The employee only has a say if the employer chooses to opt in, due to the way the memorandum and the IRS Guidance is worded.

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3 hours ago, cbslee said:

 I would think the employee would have a say in that.  If withholding is done and employer defers the payment to IRS, it would be money in the employer's pocket (at least temporaril). . . . .

If withheld, it must be remitted.  The employer cannot hold the withheld amount.  The workaround that at least partially allows the deferral, without tweaking the IRS rules, is to not withhold at all, which makes the amount due zero.

Another of several possible flaws is the lack (not that I looked hard) of any rule allowing anything other than legally required amounts to be withheld - in other words, will withholding more than the actual calculation, in early 2021, be permitted by an actual regulation?  I think there was some mention to avoid causing issues with state laws (such as collecting a debt from a paycheck illegally.) There are localities which prohibit anything other than required withholding, not even allowing side agreements.  There cannot be some sort of doubling or new calculation to recoup.  Employer will have to track the deferred amount, and come up with a repayment method.  If not repaid, then the amount itself becomes taxable wages, subject to taxation adjustments (amended forms likely).

So much left unsaid, to chance, or to slip by via election not to enforce actual regulations...

If I were forced to defer, the only way I could protect myself would be NOT to defer, but to enter into an actual loan agreement, contract, with each employee who wants to "defer".  Then I would have something I could enforce with terms a judge could accept.  Would need to have some sort of interest, if not repaid by end of April, so the loan would not be taxable wages too.

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I've been very busy with some personal issues on the homefront lately and have read only what's been posted here about this and have to say that this will create a gigantic mess. Has anyone in D.C. with these stupid ideas thought about what will happen if an employee works for a company that defers in the fall and then that employee changes jobs next year to one that didn't defer?   All I can say is thank goodness this isn't going to be a reconciling item on the 2020 1040s! 

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Missing, or left twisting in the wind:

What figures to use on 941's and W2 forms for SS wages.  How will reporting deal with SS wages and SS withheld not "matching"?  How about in 2022 if the claw back is via a paycheck deduction (where allowed)?

What about states where claw back via deduction is prohibited, or where an employee does not agree?

(If someone really wants to defer, my suggestion is to not defer, but to create and execute a binding contract for a loan, with the loan being for the amount of SS withheld each paycheck, to be paid back before May 1, 2020, and with interest (waived if paid back before May 1, 2022).  Such a contract likely solves any state claw back issues, and if unpaid, there are well known means of collection or handling the uncollected amount as additional wages.)

What about those who apply for/receive aid, and have more disposable income for 2021, and less for 2022?

How about garnishments? Same issue with disposable income.

I am sure there are other issues yet to be discovered.

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