After President Trump issued an executive memorandum deferring the collection of payroll taxes during the COVID-19 crisis, many employers were left questioning how to proceed without further instruction from the Internal Revenue Service (IRS) and the Secretary of the Treasury (Treasury). Fortunately, the agencies have recently issued guidance providing clarity on the implementation of the deferral.

The new guidance further expands on President Trump’s memorandum, now requiring employers to pause withholding, deposit and payment of employees’ payroll taxes to assist in funding Social Security. The deferral is available to employees earning less than $4,000 biweekly (or around $104,000 per year) and the period runs from Sept. 1, 2020, through Dec. 31, 2020.

The determination of which wages are considered applicable for the deferral is to be made each pay period. For example, if an employee’s wages for one pay period is less than the $4,000 biweekly threshold, the amount would be considered applicable for the deferral. However, if their wages of a different pay period exceeded the threshold, the amount would not be applicable.

Employers who are required to collect and withhold payroll taxes from their employees are considered “Affected Taxpayers” and are responsible for paying the deferred taxes between Jan. 1, 2021, and Apr. 30, 2021. Interest, penalties and other fines will start to accumulate May 1, 2021, if the taxes have not been paid. The new guidance also states that employers “may make arrangements to otherwise collect” the taxes from employees, but does not address how employers should treat the deferred taxes of employees who later quit. It also does not specify whether employees are able to opt out of the program should they choose.

Doeren Mayhew’s advisors will continue to keep you posted with more information about the payroll tax deferral as it becomes available. If you have any questions about how the deferral will affect your business, contact us today.