UPdated irs guidance and clarifications

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 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 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

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