In an attempt to help workers during the Coronavirus pandemic, President Trump signed a new executive tax law order into effect September 1, 2020. These guidance’s were addressed in the president’s memorandum that took place on August 8, 2020. According to Internal Revenue Service Notice 2020-65,“On August 8, 2020, the President of the United States issued a Presidential Memorandum directing the Secretary of the Treasury (Secretary) to use his authority pursuant to section 7508A of the Internal Revenue Code (Code) to defer the withholding, deposit, and payment of certain payroll tax obligations.1 Accordingly, the Secretary has determined that employers that are required to withhold and pay the employee share of social security tax under section 3102(a) or the railroad retirement tax equivalent under section 3202(a) are affected by the COVID-19 emergency for purposes of the relief described in the Presidential Memorandum and this notice (Affected Taxpayers). For Affected Taxpayers, the due date for the withholding and payment2 of the tax imposed by section 3101(a), and so much of the tax imposed by 1 The Presidential Memorandum is available at https://www.federalregister.gov/d/2020-17899. 2 The deposit obligation for employee social security tax does not arise until the tax is withheld. Accordingly, by postponing the time for withholding the employee social security tax, the deposit obligation is delayed by operation of the regulations. Thus, this notice does not separately postpone the deposit obligation. 2 section 3201 as is attributable to the rate in effect under section 3101(a), on Applicable Wages, as defined herein, (collectively Applicable Taxes) is postponed until the period beginning on January 1, 2021, and ending on April 30, 2021.”
The new tax law, also known as President Trump’s payroll tax deferral, instructed the Treasury Department to permit employers to defer employee’s payroll tax beginning September 1, 2020 and lasting through December 31, 2020. In order for an employee to qualify they must be making less than $4,000 on a bi-weekly pay period schedule. The equivalent threshold amount will also be recognized and defined if the employee is paid on a different schedule such as weekly, semi-monthly or monthly. Under the guidelines set forth by the Internal Revenue Service, employers are authorized to stop withholding the 6.2% percent of Social Security tax from the employee’s paychecks during this time. There is a downfall to joining in this program. Employers who decide to partake will have to recollect the social security payroll tax money by increasing the amount of taxes that will be withheld from the employee’s paychecks from January 2021 through April 2021. In conclusion, employees whose taxes are deferred will receive a bigger paycheck throughout the end of the 2020 year. On the downside, their paychecks will become smaller than normal for the first four months of 2021 unless the Congress legislation is endorsed and there is a forgiveness program for the deferred taxes.
The first employer to announce input in the payroll tax deferral is the Federal Government. This also include all parts of the military. The government chose to defer employees’ taxes to provide relief to their workers during the pandemic. Eligible government workers do not have a choice on whether they can participate. Workers who are part of Unions in which they are included in parts of the Federal government, are upset that the deferral is mandatory. While many questions arising from the Payroll tax deferral are beginning to surface, the unions are working hard to request that the Trump administration allow employees the right to make the choice. They also want to have a stronger understanding of questions unanswered regarding the arrangements to otherwise collect the total taxes from the employee back. ““We urge you to let federal workers and uniformed service members choose whether to defer their payroll tax obligations under IRS Notice 2020-65, rather than forcing them to participate,” wrote Sen. Chris Van Hollen, D-Md., in a Sept. 8 letter to Treasury Secretary Steven Mnuchin and Office of Management and Budget director Russell Vought. “While some federal employees may want to defer their payroll tax payments, unions representing federal workers have made clear that many others do not,” According to CNN MBC.
Whether you are a worker for the Federal Government and you are mandatory to have your payroll tax deferred or you’re a part of a smaller private business that’s deciding to enroll the entire company into trumps tax deferral, you may want to use this time now to budget. Staying on top of your financial obligations and being concise of funds for the upcoming year are imperative. You may want to plan ahead and budget for when its time to pay them back in the beginning of the new year. This means that cash flow will be significantly lower in the first four months of 2021. The rate in which you will have to pay the deferred money back would be 6.2% times two. You will have to make up the months that were deferred and still pay your part of the Social Security taxes for the new months. In one of Trump’s recent speeches he was aiming to win votes by stating that if he wins the upcoming presidential election, he will work towards have the deferred tax period forgiven.
In recent surveys with employers they are concerned that there is a weary chance of employees wanting to leave their job once 2021 hits. This change would be to avoid having to pay the additional money that was just deferred back. This concern also goes into play for employees who are in the position to be retiring before the 2021 year begins. However, the IRS issued guidance that even if federal employees or military personnel are relinquished from their employer or retire before the tax makeup is put into place, they still be responsible for withholding and paying the amounts back. Private companies may make private arrangements with the employees who have their taxes deferred in order to collect the taxes back. They can be set up on a small payment plan or work out other payment methods to remit the deferred tax money back to the employer. It is ultimately the employer’s responsibility to be the ones to remit the fund back to the Internal Revenue Service. Must keep in mind that all companies that are participating in this tax deferral program are subject to penalties, interest and additions to tax balances if they do not remit the deferred taxes by the deadline date given of April 30, 2021. It will be the employer who receives the penalties and added interest.
If you are not sure whether your employer has chosen to be a part of the payroll tax deferral then it would be best to contact your Human Resources department immediately. They will be able to tell you what is happening directly related to your payroll. Every time you receive a paycheck you also will receive a printout statement, also known as a paystub, that will detail out the amount of taxes that are withheld each pay period. Make sure that you are paying attention to whether or not the social security tax is being deferred or withheld from your paycheck so that you can make sure to be prepared financially in the beginning of the new year. The payroll tax deferral in simpler terms is basically a loan. Its giving us, the workers, immediate relief but is only pushing the burden off until a later date.