On Friday, August 28, the Treasury/IRS released official guidance on the payroll tax deferral Executive Order which took effect today, September 1.
The National Association of Wholesaler-Distributors (NAW) is cautioning businesses to be very careful before deciding to participate in this program. Business should consult with their tax advisors before making a decision.
NAW feels the guidance does not clearly address key concerns and questions, including:
- Employers are identified as the taxpayers even though it is the employee’s portion of the payroll tax that would be deferred.
- It is not clearly stated that the program is voluntary although there is no language making it mandatory.
- There is no statement that gives the employees the right to choose whether or not to participate which leaves the decision only with employers.
- The tax deferral would apply to biweekly wages of $4,000 or less, calculated on a pay period basis, which apparently requires the employer to determine which pay periods the tax could be deferred if an employee’s pay was over $4,000 in some pay periods but under $4,000 in others.
- The employer is required to withhold and pay any 2020 taxes deferred under this program beginning on January 1 – April 30, 2021, resulting in employees paying double the payroll tax for those four months.
- The guidance does not answer the question of how an employer handles the deferred taxes from an employee who has left the company, other than stating that “if necessary, the Affected Taxpayer may make arrangements to otherwise collect the total Applicable Taxes from the employee.” It also does not clearly state who is responsible if an employer is unable to collect the deferred taxes from a former employee.
Read the official guidance from the Treasury/IRS.
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