We Are Running Out of Time, or Payroll Tax Deferral Without Guidance is…

It’s been almost 3 weeks and we accountants, employers and employees have been waiting for answers so that we can make an informed decision.  When I first read the memo I was concerned about the unforeseen consequences.  Please click through to my blog post of August 10th, for the full details and concerns as next week starts the clock and I am still concerned.

So are many who have been following along as discussed in this recent AccountingToday article:  “Trumps Payroll Tax Deferral on Hold Without Guidance?”  Which features quotes from the US Chamber of Commerce and some large employers.

Update link to Journal of Accountancy article summarizing the recent IRS guidance for employers:  Guidance issued on payroll tax deferral

Update link to AccountingToday article discussing the issues yet again and highlighting the 2020 collection process:  IRS says companies are responsible for deferred payroll taxes 

Here is the link to the latest IRS guidance

This link to a recent Forbes article  “Questions remain after IRS rolls out guidance on payroll tax deferral” focuses again on lack of guidance and the impact on the employer

The key points:

Purpose: Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster for those employees who earn less than $26,000 per tax quarter or $104,000 per year.

  • Assuming a complete deferral of the tax imposed by 26 U.S.C. 3101(a), which is the 6.2 percent Social Security tax.  This equates to a deferral of a maximum of approximately $2,100 for the 4 month term of the deferral, or about $124/week per employee.
  • What if an employee has more than one job? How does this affect those who are self-employed and pay this tax via quarterly estimates and account for it on their federal income tax return?
  • These payroll tax funds are generally paid into their respective Social Security and Medicare trust funds.
  • Sec 2 (b) amounts deferred pursuant to the implementation of this memorandum shall be deferred without any penalties, interest, additional amount, or addition to the tax.
  • Sec 4  Tax Forgiveness:  The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.
  • Deferring “kicks the can down the road” not sure I recommend doing this and I am concerned that this memorandum is a bit vague.  For instance, could this backfire for the employer whose employee chooses deferral and then does not have the funds to pay the bill in the future or is no longer working at the time the funds are due, (might the employer be liable for the employee’s side of FICA withholding)?
  • What if we don’t defer and hold the funds in an escrow or side account for our employees, are we opening ourselves (and our employees) up to a huge payment down the road.  On the other hand. are we leaving money on the table so that if we do not defer and there is a forgiveness were those who were more cautious penalized?

So with no clear answers in sight, we will hurry up and wait again, hoping that an announcement comes in before Tuesday and hold discussions with our clients to see what they feel comfortable with.

Does anyone out there have a crystal ball?  Feel free to contact us with your preference, ideas or just to chat.

Want to grow your business? Our Complimentary Resources will Help