COMPLIANCE UPDATE: MEMORANDUM ON DEFERRING PAYROLL TAX OBLIGATIONS
On August 28, the IRS issued guidance to employers about how to implement the directive. For a review of this guidance and overview of questions that remain about the payroll tax directive, please refer to our blog.
If you have questions, do not hesitate to reach out to the Anthros team.
On August 8, the President signed the Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, which directs the Treasury Department to defer collection of employees’ Social Security taxes for the period September 1, 2020-December 31, 2020.
What the memorandum says:
- Employees who earn less than $4,000 in a biweekly pay period will be eligible for the Social Security tax deferral.
- Only the employee portion of Social Security taxes is addressed in the memorandum. (However, under the previously passed CARES Act, eligible employers can defer the employer’s share of Social Security payroll taxes)
- The directive does not apply to the Medicare portion of payroll taxes. Medicare payroll taxes will still be deducted from the employee’s pay.
The President’s memorandum raises many questions that we do not yet have answers for. The Treasury Department and/or IRS are expected to issue more guidance to clarify the many unknowns for employers and explain how the payroll tax deferral will be implemented. The memorandum could also be superseded by new COVID-19 relief legislation passed by Congress or additional executive orders.
Questions and issues that need clarification:
- How and when will employees be expected to pay the deferred Social Security taxes? Will qualified wages be reported on an employee’s W-2?
- Does an employer have to defer Social Security taxes for all eligible employees or offer as an option?
- How will employers report on their employees’ qualified wages during the deferral period?
- What happens when an employee’s wages fluctuate above and below the $4,000 limit from week to week?
- Is the $4,000 limit defined by wage income only?
- What are the payment obligations and liabilities for employers?
Another challenge employers face is communicating the details of the payroll tax deferral to employees. Most importantly, employers need to educate their team members that employees will be expected to pay these deferred taxes at a later time.
This is an evolving situation, and the Anthros compliance team is closely monitoring new guidance, legislation and regulatory updates. We are currently working with our HR technology platform to make necessary updates to our payroll and reporting systems to ensure our clients remain in compliance.
As more information becomes available, we will update clients and let them know how they will be affected. Please continue to check the Anthros blog for the latest news on COVID-19 and regulatory compliance.