Answers to Employee Payroll Tax Deferral Questions

What you’ll discover:

What exactly is a payroll tax deferral?
Who is impacted by the COVID-19 payroll tax exemption?
When does the deferral period for payroll taxes begin?
How do I go about navigating all of the new COVID-19 small business relief options?

This post was modified on September 2, 2020. The first publishing date was set for August 19, 2020.

In early August, President Donald Trump issued multiple executive orders addressing the damaging impact of COVID-19 on the US economy. The delay of employee-side payroll tax obligations is one order that has a direct effect on numerous firms. Employers may abstain from withholding the employee’s share of the Social Security tax under this directive. Now that the IRS and Treasury Department have issued new information, the following questions and answers will assist throw light on who is impacted by the deferral and how it would function.

What exactly is a payroll tax deferral?

A payroll tax deferral simply permits you to pay your payroll taxes later. This does not mean you do not have to pay taxes; it merely postpones when you must. The United States government has implemented important COVID-19 relief legislation and regulations, but some are unclear, and it may be difficult to determine which ones apply to your circumstance. The Coronavirus Assistance, Relief, and Economic Security (CARES) Act, signed into law in March 2020, allowed companies the option of deferring the employer’s contribution of payroll taxes. Businesses may now postpone collection of the employee’s part of payroll taxes under this new presidential order.

Who is impacted by the COVID-19 payroll tax exemption?

Employers and workers are both affected by payroll tax deferral. According to the latest IRS Notice 2020-65, businesses now have the option of deferring the employee’s contribution of Social Security taxes to workers earning less than $4,000 biweekly during the deferral period of September 1 through December 31, 2020. Each pay period, employee eligibility must be assessed.

After the deferral period, the amount of delayed taxes would be taken from the employee’s paychecks between January 1 and April 30, 2021. This deduction is in addition to the payroll tax that is generally incurred from January through April. Employers must recognize that they are accountable for repaying the IRS for the postponement. If an employee departs, the company may collect the cash via payroll or other ways, but it is ultimately the obligation of the employer to pay back the delayed taxes.

You have the option as an employer to give tax deferral to qualifying workers, but you should contact with your company tax professional or an attorney before selecting how to execute the new policy. There are still issues regarding how companies should implement the deferral, and an expert may assist you in determining what is best for your company and workers.

If you are self-employed, you have tax deferral options under the CARES Act as well, but you should consult a tax expert or an attorney before making choices concerning your personal withholding. The IRS offers a FAQ page devoted to CARES Act payroll tax deferments.

When does the deferral period for payroll taxes begin?

The presidential order and related guidelines enable qualified workers to postpone payroll taxes from September 1, 2020 until December 31, 2020. From January 1 through April 30, 2021, any deferred taxes must be withheld from paychecks. This is in addition to the standard employee-side payroll tax withholdings throughout this time period.

How do I go about navigating all of the new COVID-19 small business relief options?

It may be difficult to keep up with all of the new laws, rules, and regulations established by federal, state, and municipal governments. These initiatives are intended to assist small firms in particular, but how can you capitalize on these chances when the laws are convoluted and difficult to follow?

The Coronavirus Law Center provides timely legal information and help to people, families, and businesses affected by the epidemic. You will discover COVID-specific materials that you may use as a company to negotiate employee furloughs, commercial leases, contract renegotiations, and other issues. You will also be assisted in determining if your company is eligible for COVID-19 government support. You may ask one of our volunteer lawyers a question for more detailed help.

Watch for statements from both agencies as we navigate these unknown seas together as the IRS and Treasury Department continue to put out further information defining the new tax deferral policy.