The President’s action to defer payroll taxes: What does it mean?
Stay up to date on payroll tax and deferments! President Trump issued a memo regarding deferring payroll tax obligations on August 8, 2020. This memorandum directs the Treasury Secretary to defer the withholding on employee FICA and Medicare, and the employer deposit and payment requirements of employee social security taxes for wages paid beginning September 1 through December 31.
The deferral will be available to any employee whose pretax wages generally are less than $4000 in a biweekly pay or other acquittal and amounts with respect to pay periods (the equivalent of $104,000 a year). The maximum annual wage limit is $100,000 as described in a separate White House announcement. 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
The deferral of deposits and payments does not exempt a taxpayer from filing payroll tax returns. Also 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 additions to tax will begin to accrue on unpaid taxes starting May 1, 2021.
This action only defers the taxes, which means they’ll have to be paid in the future. However, the action directs the U.S. Treasury Secretary to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.” Only Congress has the power to waive taxes, so all the President can do is postpone when they are due. The answer from the Internal Revenue Service was no, employees are still on the hook for paying their taxes next year.
The IRS has now released a draft version of a revised Form 941. The new 941 has new lines and a new page! There are still so many questions regarding the form!
Employers have questions and concerns about the payroll tax deferral. For example, since this is only a deferral, will employers have to withhold more taxes from employees’ paychecks to pay the taxes back, beginning January 1, 2021? As of now – Yes!
Without a law from Congress to actually forgive the taxes, will employers be liable for paying them back? As of now – Yes!
What if employee leaves before taxes and withheld and paid in…
Remember this deferment is voluntary! Contact us if you have questions about how to proceed.
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