On Friday, August 28, 2020, the Internal Revenue Service (IRS) issued highly anticipated guidance surrounding the payroll tax deferral. President Trump’s Executive Order was signed on August 8, 2020, and delays the collection of the employee portion of Social Security and Medicare for those who earn less than $4,000 every two weeks, or about $104,000 annually.
Deferring the payroll tax for employees appears to be optional, but for those who choose to opt-in, employers may defer the withholding, deposit, and payment of the employee portion payroll taxes from September 1, 2020 until December 31, 2020. To compensate for the deferral, participating organizations would withhold double the amount of payroll taxes from January 2021 through April 2021.
If an employee leaves a company before the payroll taxes are recovered, the employer is still responsible for the repayment. This tax deferral cannot be forgiven and the IRS Notice, at this time, does not address tax deferrals for self-employed individuals.
While the deferral period begins tomorrow, September 1, 2020, there are still many questions to be answered. The business community is hoping that the IRS will release additional guidance to clarify how the deferral will be implemented and repaid.
