On August 28, the IRS (Internal Revenue Service) issued guidance (Notice 2020-65) executing a White House directive to comply with some employee payroll taxes. But this guidance upraises more questions than it acknowledges and appears to expose organizations to potentially vital repayment responsibilities and other risks.
The guidance on employee payroll tax deferral was assigned by a memorandum issued by President Donald Trump. The Administration spent many weeks examining administrative apparatus for forgiveness and alternatives to inspire organization participation without forgiveness. The guidelines itself does not propose any mechanism for forgiveness, but President Trump has vouched to establish law forgiving the deferred taxes only if he is elected again.
As drafted, the guidance imposes vital responsibilities and potential prospective liability on organizations. Also, it is brief and leaves various areas of risk. Therefore, organizations should carefully analyze their potential obligations and uncertainties before any determination to comply with withholding on behalf of workers.
About Employee Payroll Tax Deferral Guidance
Notice 2020-65, the Employee Payroll Tax Deferral postpones the scheduled date for withholding the 6.2% employee percentage of Social Security tax on specific wages and compensation paid to workers from September 1, 2020, through December 31, 2020. The appropriate period is circumscribed by the “pay date,” not when the assistance was conducted associated with the wages.
The notice asserts that the “due date for withholding and payment” is delayed but explains in a note that the declaration aims to postpone the withholding obligation immediately. The footnote states that the only obligation to deposit occurs when the tax is withheld. So, the scheduled date for deposits is automatically postponed till withholding happens. This design appears to prevent organizations from practicing the relief for their short-term liquidity by proceeding to withhold the tax but delaying its later deposit.
Employer Responsibilities
To some extent, an organization could not receive the remaining deferred taxes from a worker. The responsibility to repay resides with the organization. Employers would accumulate penalties, interest, and additions to tax for the deferred amounts not paid by April 30, 2021. In addition, to the extent, an organization pays a worker’s Social Security tax obligations on the worker’s behalf. Under the current rules, the organization would have to inscribe the payment as extra taxable income to the worker and even have to estimate the payment to settle the constant employment tax withholding responsibility on the additional income. The report does not discuss this problem, and it would oblige that additional guidance or new enactment would be needed to eliminate these tax consequences.
Final Words
Organizations should thoroughly analyze all the potential outcomes before making any decision to obey withholding Social Security tax. There are significant reasons to be very careful.
To know more about the employee payroll tax deferral, attend the webinar conducted by Compliance Prime.
