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President Trump’s Executive Order- Still More Questions Than Answers

On August 8th, President Trump issued an executive order deferring the withholding of the employee portion of Social Security Tax. Although this is scheduled to go into effect on Tuesday, September 1st, it is still pending full guidance from the IRS on how it should be implemented.  This leaves both businesses as well as their payroll providers in a challenging position.

The IRS responded on Friday, August 28th, with preliminary guidance to answer some of these pending questions, including the definition of applicable wages, qualifying payroll threshold amounts, and the repayment dates.

As of now, we know that this tax withholding suspension period only applies to employees whose wages are less than $4,000 for a bi-weekly pay period (including salaried workers that earn less than $104,000 annually), and it is set to be in effect from September 1st to December 31st of this year.

Any company suspending the collection of their employees’ payroll tax would be required to collect those taxes in 2021 from January 1st through April 30th, in order to repay the tax obligation.

The short notice issued by the IRS, Notice 2020-65, currently does not include any penalties for non-compliance if an employer opts to not suspend their employee’s Social Security FICA withholding tax. It also does not include guidance on how to opt out.

Given the short notice, this order could pose an issue with both payroll providers and payroll processors, as software changes can require weeks or months to implement, and this assumes clear direction from the IRS.

Additionally, it should be noted that if an employer does choose to suspend collection, they are responsible for the repayment of the deferred taxes in the first four months of 2021. Anything owed past April 30th, 2021 will be subject to interest and penalties may accrue on employers for any amount that has not been repaid.

Another concern left unclear is the issue of departing employees. If an employer does not withhold the Social Security tax (which is 6.2 percent of an employee’s pay) during the last 4 months of the year, and  the employee leaves before the employer can collect the tax from the employee, then the employer may be liable for those uncollected taxes.

The guidance currently states that an employer may make arrangements with the employee for repayment of these taxes, but it does not specify how or how far an employer can go to collect or enforce this.

Before deciding to stop tax withholding, employers should consider all the information available.  Not least of which is, how to track deferred tax withholding and tax repayments? Many critical questions remain unanswered, such as employer vs. employee liability, what happens if an employee terminates before they repay the deferred taxes, and whether or not employers have a choice in offering the deferral in the first place.  Many “issues” being discussed currently could require new legislation to be passed in order to implement the executive order.

Have questions?  Contact us for the latest updates.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.