The IRS issued additional guidance on August 28th regarding the Presidential Memorandum issued on August 8, 2020 for the deferral of certain payroll taxes.
The guidance reiterates that employees with applicable wages less than $4,000 on a bi-weekly basis are eligible. The threshold is determined on a period to period basis and not an annual basis. As a result, an employee could qualify for the deferral in one period and not qualify in the next.
Applicable wages are wages that are subject to Social Security Tax and the comparable amount for Tier 1 Railroad Retirement Tax beginning September 1, 2020 and ending December 31, 2020.
The additional guidance does not specify that employers are required to suspend the withholding and payment of the employee portion of the Social Security tax. The guidance only states that the due date for the withholding and payment is postponed until the period beginning on January 1, 2021 and ending on April 30, 2021.
Bloomberg reported that, "Treasury Secretary Steven Mnuchin has said he "can't force" companies to stop withholding the payroll levies, but that he hopes many companies will participate." This would appear to provide employers the ability to decide whether or not they will participate. However, no authoritative guidance provided by the Treasury has explicitly provided employers an option.
Employer’s deferring the tax for employees will need to withhold and pay the total amount of tax deferred ratably from the employees' wages and compensation paid between January 1, 2021 and April 30, 2021. Deferred taxes not withheld and remitted during the first four months of 2021 would begin to accrue interest, penalties, and additions to tax on May 1, 2021.
The issued guidance answers questions related to the repayment of the tax. Unfortunately, the guidance does not address many of the issues that have been raised by employers. Rather, the guidance places much of the burden on employers for implementation. The issuance of this guidance will certainly place payroll software providers in a difficult position with no time to develop and test software upgrades necessary to allow for participation. Many employers don't like the idea of suspending withholding and payment of the tax now only to double up on the withholding for the first four months of 2021. Employer participation in the program, assuming it is optional, is likely to be very low considering the burdens that come with participation are numerous.