Payroll Tax Deferral May Help Employees Affected by COVID-19

 Posted on September 22, 2020 in Business Law

The COVID-19 crisis has placed many businesses and their employees in difficult financial situations. Some businesses have had to close or limit their hours of operation, and many employees have been laid off or had their work hours reduced. While some government relief programs have provided aid to those who have been affected by these issues, many people are continuing to experience financial difficulties. A recent executive order may provide some help in this area by allowing employers to defer some of the taxes withheld from employees’ pay.

Social Security Tax Deferral

In August of 2020, President Trump issued an executive order that allows for the deferral of the 6.2% tax employees pay toward Social Security. This deferral will be allowed for wages earned between September 1 and December 31, 2020. To qualify for deferral, an employee must earn less than $4,000 in pre-tax income in a bi-weekly pay period.

While these payroll taxes may be deferred, this order does not provide for the forgiveness of any taxes owed. Deferred taxes will be collected between January 1 and April 30, 2021. During the deferral period, employees will receive a temporary boost in their take-home pay, but they will then see reduced paychecks in 2021 due to the deferred taxes being withheld from their pay along with all other applicable taxes.

Employer Responsibilities

In response to the president’s executive order, the IRS has issued guidance describing the responsibilities of employers in cases involving tax deferral. Employers will be required to collect all taxes that were deferred by withholding these amounts from employees’ paychecks between January and April of 2021. In situations where an employee who had deferred taxes no longer works for an employer, the employer will need to make other arrangements to collect the deferred taxes, or face the possibility of incurring penalties for non-payment. If any Social Security taxes that had been deferred remain unpaid after April 30, 2021, penalties, interest, and other taxes will apply.

Contact Our Elgin Business Law Attorneys

While the deferral of Social Security taxes may be beneficial for some employees, it may lead to additional complications for employers. This is especially true in situations involving temporary employees or workers with fluctuating income due to bonuses, commission, overtime, or tips. The Kane County business lawyers at Ariano Hardy Ritt Nyuli Richmond Lytle & Goettel, P.C. can advise business owners about their options and the steps they can take to protect themselves from potential penalties. To learn more about how we can help businesses address payroll tax issues and other financial concerns, contact our office at 847-695-2400 to set up a free consultation.

Sources:

https://www.federalregister.gov/documents/2020/08/13/2020-17899/deferring-payroll-tax-obligations-in-light-of-the-ongoing-covid-19-disaster

https://www.irs.gov/pub/irs-drop/n-20-65.pdf