Did you know these top 3 facts to consider about the President’s Tax Deferral Memorandum?
At Banks & Associates, we recognize there’s a lot of uncertainty around last month’s Presidential Memorandum regarding a potential tax deferral for employees.
In case you missed it…
On August 8, 2020, the President of the United States issued a Presidential Memorandum directing the Secretary of the Treasury to allow employers to defer the employee's portion of Social Security taxes from September 1, 2020, through December 31, 2020, for employees making less than $4,000 on a bi-weekly basis.
Well friends, this one’s loaded!
The intention of the tax deferral is to help employees keep more money in their pockets during these difficult, COVID-19-riddled times.
But, as it stands, these taxes will only be deferred. And employees will still have to pay them back in 2021.
Employers may be asking, “How do I implement this deferral for my employees who would like to take advantage of it?”
Employees may be asking, “Is this deferral right for me?”
While we can’t tell you exactly what to do here, we can provide you some quick points to help you with your own decision on how to navigate Donald Trump’s recent Presidential Memorandum.
Whether you’re an employer or employee, we encourage you to check out the following:
Our Top 3 Facts to Consider About the President’s Tax Deferral Memorandum:
For employees who participate, they’ll likely see smaller paychecks in 2021.
Not paying Social Security tax (6.2%) may sound enticing, but employees should understand that this is only a tax payment deferral. In other words, employees will still be responsible for unpaid taxes later down the road. Unpaid taxes from September – December 2020 will need to be recouped from paychecks issued January to April 2021.Trump wants to forgive the deferred taxes, but forgiveness would require legislation to pass.
In other words, there’s no guarantee that the deferred taxes will be forgiven. Therefore, both employers and employees should anticipate that the deferred taxes will need to be paid at a later date.Many employers are unlikely to participate.
With the IRS giving very little guidance in this program’s implementation – and because employers will be responsible for recouping the deferred taxes from their employees during January through April 2021 – many employers are unlikely to participate. Below are just a few of the headaches that would leave employers feeling like they’re set up to lose with this one:If the employer does not withhold the 6.2% from the employee’s paycheck because the employee has elected to take advantage of the deferral (now through Dec. 31, 2020), the employer will be liable for remitting the deferral between Jan. 1 through April 30, 2021. With Quickbooks and many other payroll software companies choosing not to update their software to accommodate the memorandum, this certainly represents not only a liability headache, but an accounting headache as well.
If the employer does not withhold the 6.2% from the employee’s paycheck and the employee leaves the employer before Dec. 31, 2020, the employer is liable for remitting the tax to the IRS and probably has limited resources on collecting the deferral from the employee. (One option for the employer is to deduct the deferred amount from the employee’s last paycheck if the funds are available and if permitted by law.)
If active employees take advantage of the program (which makes their paychecks look better the last few months of 2020), they’re not going to be happy when they see the dip in their paychecks during the first few months of 2021.
As you can see, while one might argue that Trump’s latest memorandum is well-intended, its actual implementation poses a new set of problems.
At Banks & Associates, we want all our clients to know that you can lean on us if you’re struggling to decide what’s best for you in this situation. Please don’t hesitate to contact us with any questions or concerns. We’re only a phone call away.