On Saturday, August 8, 2020, President Trump signed an Executive Order that directs the Treasury Department to defer the withholding, deposit, and payment of the employee share of FICA from September 1 through the end of 2020, providing they make less than $104,000.00 a year. The act includes a section saying The Secretary of the Treasury will explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred, but that has not been guaranteed or finalized as of this date. The deferred payroll taxes would need to be withheld and deposited by April 30, 2021, effectively increasing net pay in 2020 but decreasing net pay in 2021 for all qualified employees.
Accounting professionals and private-sector employees expressed their concerns about the number of unanswered questions that arose after the executive order was signed, so the IRS issued additional guidance on August 28th and it loosely addressed one significant issue.
Are employers required to defer withholding employee payroll taxes?
The notice does not directly state whether the payroll tax deferral is optional for employers. However, based on the authority on which the guidance relies, it appears that employers can choose whether to implement the deferral. The IRS and Treasury press releases use language to describe the guidance as “allowing” deferral and “available” to employers.
The notice does not apply to employees. Only “employers that are required to withhold and pay the employee share of social security tax” are designated as “Affected Taxpayers” for purposes of this order. While not explicitly defined, the notice gives employers full discretion on the implementation of the deferral and employees would not be able to force his/her employer to suppress the FICA deduction. Note: there appears to be an allowance for employers to offer deferment as an option, but they do not have to implement it company-wide.
This is important: Should employers elect to implement the deferral, they will be responsible for withholding and depositing the taxes, even if the employee is no longer there.
Now for the twist! Even if you decide to continue to withhold and deposit as you normally would, there is still a risk that Congress may actually pass a forgiveness bill and employees who have not had their FICA withholdings deferred will likely be unable to obtain a refund. The consequences or liability for employers if this ultimately happens has only been discussed in theory by accounting professionals but may be a consideration for you as you decide how to proceed.
As with all accounting and tax related issues, we do not provide specific advice but encourage you to reach out to your C.P.A. for how this affects you!
Finally, should you elect as the “Affected Taxpayer” to defer the deposit of the employee share of FICA, please note that Sage is currently reviewing potential product updates. Sage is also aware of the new Q3-2020 941 which is available as a draft now. – MZ