New Payroll Tax Provisions

On Friday evening, the Treasury Department issued guidance on the deferral of the employee’s share of certain payroll taxes that President Donald Trump ordered in early August.

The notice allows employers to defer the withholding of the employee’s portion of the old-age, survivors, and disability insurance and Railroad Retirement Act Tier 1 tax (Social Security Tax) for certain employees’ compensation during the last four months of 2020. The employer’s responsibility to deposit these taxes at that time is also deferred.

The deferral applies to any employee whose pretax wages or compensation during any biweekly pay period is less than $4,000, or the equivalent amount with respect to any other pay periods (”applicable wages”). The determination of applicable wages is to be made on a pay-period-by-pay-period basis — meaning that if the amount of compensation payable to an employee for a particular pay period is less than the threshold amount, then the payroll tax deferral applies to that compensation, irrespective of the amount paid to that employee in other pay periods.

However, the notice requires employers to withhold and deposit the deferred taxes ratably from wages and compensation paid to the employee during the period between Jan. 1, 2021, and April 30, 2021. Interest, penalties, and additions to tax will begin to accrue on unpaid taxes starting May 1, 2021. The notice says, that if it is necessary, employers can make arrangements to otherwise collect the taxes from the employee, but the notice does not provide any details on that requirement.

We understand that the various payroll services are updating their software for these new rules.

There are many unanswered questions, such as what happens when an employee who has had payroll taxes deferred leaves and can an employee choose to have their taxes withheld currently if the employer is not withholding currently or vice versa?

We will update you as more information becomes available.

If you have any questions, please reach out to your Citrin Cooperman Advisor.