Can Employers Affected by COVID-19 Defer Payroll Taxes?

 Posted on September 29, 2020 in Small Business Taxes

Employers and employees throughout the United States have been affected by the COVID-19 pandemic. Many businesses have been forced to close, reduce hours in operation, or lay off employees. While some programs have been implemented to provide relief to both businesses and individual taxpayers, many people and businesses continue to struggle financially. In response to these concerns, a recent presidential order has been issued that will allow employers to defer certain payroll taxes.

Payroll Tax Deferral Available from September through December of 2020

On August 8, 2020, President Trump issued a Presidential Memorandum, “Relief with Respect to Employment Tax Deadlines Applicable to Employers Affected by the Ongoing Coronavirus (COVID-19) Disease 2019 Pandemic.” This order allows employers to defer the withholding of employees’ share of Social Security (FICA) taxes on wages paid between September 1, 2020, and December 31, 2020. Deferrals are available for any employee who earns less than $4,000 on a biweekly basis before taxes are withheld.

While deferring payroll taxes may allow employees to receive additional take-home pay during this period, the deferred taxes must be repaid at a later time. Between January 1, 2021, and April 30, 2021, any deferred taxes must be withheld and paid by an employer. In some circumstances, such as cases where an employee stops working for an employer before deferred taxes have been repaid, an employer may need to make arrangements to collect the taxes owed from the employee.

No interest or penalties will apply to deferred payroll taxes, as long as they are fully repaid by April 30, 2021. If any deferred taxes remain unpaid as of May 1, 2021, interest, penalties, and additional taxes may be added to the amount owed. While the Presidential Memorandum stated that avenues for the forgiveness of deferred payroll taxes should be explored, this will likely require legislation from the U.S. Congress, and there are currently no plans to forgive taxes that are owed.

Contact a San Jose, CA Business and Payroll Tax Attorney

While payroll tax deferral may provide some immediate relief, there are a variety of legal issues that may affect employers and employees. Determining how deferral will apply to temporary or seasonal employees and workers whose wages fluctuate due to overtime, bonuses, or tips may be a complex matter, and it is recommended that employers consult with an experienced San Jose business and payroll tax lawyer to determine their best options. At John D. Teter Law Offices, we can provide guidance to employers and ensure that they meet all requirements put in place by the IRS. Contact us today at 408-866-1810 to arrange a consultation with Attorney John D. Teter.

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