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UPdated irs guidance and clarifications

The IRS issued guidance on August 28th (Notice 2020-65) related to the deferral of the employee portion of Social Security taxes. In summary, it appears that employers are not required to permit the deferral, and because of the potential pitfalls and drawbacks described below, employers should consider not deferring any employee’s Social Security taxes absent a compelling reason.

The big takeaways from updated IRS guidance:

The deferral is not mandatory. Whether to defer any employee’s Social Security taxes is up to the employer.

Employees cannot force or otherwise require the employer to defer the employee portion of Social Security taxes. The employer may, however, offer the deferral to employees on a voluntary basis.

If an employer chooses to defer any employee’s Social Security taxes, then:
- The employer must withhold the deferred taxes ratably from wages and compensation paid to the employee between January 1, 2021, through April 30, 2021. To the extent the deferred taxes are paid to the IRS within this period, no penalties, interest, or other additions (collectively “IRS sanctions”) will apply.
- Note that combined with regular Social Security taxes (6.2 percent) payable by the employee on wages and compensation during this period, the withholding of the deferred tax (additional deferred 6.2 percent) will result in a combined Social Security tax withholding obligation of 12.4 percent.
- Beginning May 1, 2021, IRS sanctions will start accruing on any deferred taxes that remain unpaid by the employer.
- The employer is liable for any deferred taxes not withheld from the employee’s compensation. For example, if the employee terminates from employment, dies, or otherwise does not pay the deferred taxes, the employer must pay the amount to the IRS. The employer would have to make separate arrangements to recover the amount from the employee.

“Applicable wages” include all pay wiith “pay date” of Sept 1st through Dec 31st that is less than the pay period threshold amount.

The pay threshold was clarified to not be “generally” less than $4,000 during a biweekly pay period but rather explicitly less than $4,000 during a biweekly pay period. We can therefore extrapolate thresholds for various payroll frequencies:
- Weekly: $2,000
- Semi-monthly: $4,333.33
- Monthly: $8,666

And the biggie, who is responsible to pay?
- The Employer is responsible for the tax liability and to have it remitted.
- The Employer is responsible to obtain the deferral payment amount from the employee.
- If the employer is unable to withhold from the employee, the employer is able to make any other arrangements to collect the funds from the employee.
- The Employer is liable for timely repayment to prevent penalty exposure.

Referenced by Asure Software

A letter from PRopay

Dear Employers,

Your ProPay team has been diligently watching, reading, and waiting for guidance in regards to the employee tax deferral. The following are the facts that we know so far:

Employees are allowed to begin the tax deferral starting September 1st, 2020, and it will end on December 31st, 2020.
It is the deferment, not forgiveness, of the employees 6.2% Old-Age, Survivors, and Disability Insurance tax (OASDI).
It is for employees receiving payments of taxable wages less than $4,000.00 bi-weekly.
Employers will be expected to pay back the amounts deferred between January 1st, 2021, and April 30th, 2021. Interest, penalties, and additions to taxes will begin to accrue on unpaid taxes starting May 1st, 2020.
The responsibility to pay the deferred taxes is on the employer when it comes time.

Because the responsibility and decision for the employee tax deferral seem to be on the employer, we advise our Clients to NOT allow the deferral at this time. Asure, our payroll software, is not yet updated to allow the deferral as there is not enough information for their software team to make the necessary changes. We have been assured that it will be updated when there is more information. We will continue to watch for and update you, our clients, as more information becomes available.

We understand that it is ultimately the employer's decision and will do what we are told. With that in mind, please find the Employee Tax Deferral Form link below for the employee and employer to read and sign. We must have a completed form returned to us before we will start deferring the OASDI. We are having a translator convert this form to Spanish. If you need a copy in Spanish please let us know.

Please reach out to us with any questions and or concerns,

Your ProPay Team

President memorandum

Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster

Issued on: August 8, 2020

MEMORANDUM FOR THE SECRETARY OF THE TREASURY

SUBJECT: Deferring Payroll Tax Obligations in Light
of the Ongoing COVID-19 Disaster

By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:

Section 1. Policy. The 2019 novel coronavirus (COVID-19) that originated in the People’s Republic of China has caused significant, sudden, and unexpected disruptions to the American economy. On March 13, 2020, I determined that the COVID-19 pandemic is of sufficient severity and magnitude to warrant an emergency declaration under section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207, and that is still the case today. American workers have been particularly hard hit by this ongoing disaster. While the Department of the Treasury has already undertaken historic efforts to alleviate the hardships of our citizens, it is clear that further temporary relief is necessary to support working Americans during these challenging times. To that end, today I am directing the Secretary of the Treasury to use his authority to defer certain payroll tax obligations with respect to the American workers most in need. This modest, targeted action will put money directly in the pockets of American workers and generate additional incentives for work and employment, right when the money is needed most.

Sec. 2. Deferring Certain Payroll Tax Obligations. The Secretary of the Treasury is hereby directed to use his authority pursuant to 26 U.S.C. 7508A to defer the withholding, deposit, and payment of the tax imposed by 26 U.S.C. 3101(a), and so much of the tax imposed by 26 U.S.C. 3201 as is attributable to the rate in effect under 26 U.S.C. 3101(a), on wages or compensation, as applicable, paid during the period of September 1, 2020, through December 31, 2020, subject to the following conditions:

(a) The deferral shall be made available with respect to any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis, or the equivalent amount with respect to other pay periods.

(b) Amounts deferred pursuant to the implementation of this memorandum shall be deferred without any penalties, interest, additional amount, or addition to the tax.

Sec. 3. Authorizing Guidance. The Secretary of the Treasury shall issue guidance to implement this memorandum.

Sec. 4. Tax Forgiveness. The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.

Sec. 5. General Provisions. (a) Nothing in this memorandum shall be construed to impair or otherwise affect:

(i) the authority granted by law to an executive department or agency, or the head thereof; or

(ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

(b) This memorandum shall be implemented consistent with applicable law and subject to the availability of appropriations.

(c) This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

(d) You are authorized and directed to publish this memorandum in the Federal Register.

DONALD J. TRUMP