On August 8, 2020 Pres­i­dent Trump put into action a pay­roll tax relief for employ­ees with tax­able wages that are less than $4,000 dur­ing a bi-week­ly pay peri­od through an exec­u­tive order. Employ­ers are able to defer with­hold­ing, deposit and pay­ment of the Social Secu­ri­ty tax­es on those wages dur­ing the peri­od of Sep­tem­ber 1, 2020 through Decem­ber 31, 2020. This is not an exemp­tion of the tax, but strict­ly a defer­ment. These deferred tax­es will need to be paid back dur­ing the peri­od of Jan­u­ary 1, 2021 through April 30, 2021. The exec­u­tive order men­tions that the Sec­re­tary of Trea­sury is to explore options to elim­i­nate the oblig­a­tions alto­geth­er, how­ev­er that seems unlike­ly and that the defer­ral is where things will stand. On August 28, 2020 the Trea­sury and IRS issues Notice 2020–65 with fur­ther guid­ance for employ­ers.

We at MACKEY have tak­en an in-depth look and rec­om­mend that busi­ness­es con­tin­ue to with­hold the nor­mal lev­el of tax­es and do not ini­ti­ate a tax defer­ral for the fol­low­ing rea­sons:

  1. Enact­ing this defer­ral would require a lot of plan­ning and doc­u­men­ta­tion to set up. In order to pro­tect your­self, you would want to have the employ­ees sign a con­tract agree­ing that the Social Secu­ri­ty tax­es would increase dur­ing the 2021 peri­od men­tioned above and will be paid back even if the employ­ment ends for what­ev­er rea­son. You will also need to com­mu­ni­cate with your pay­roll provider to ensure that every­thing is adjust­ed cor­rect­ly for both peri­ods. With these changes being enact­ed so quick­ly, there is an increased chance of human error and mis­cal­cu­lat­ing the adjust­ed pay­roll amounts.
  2. Many employ­ees in our coun­try live pay­check to pay­check and need every dol­lar to main­tain their liveli­hood. If the tax­es are to be paid back at a high­er lev­el in 2021, this means that employ­ees will receive a low­er net pay­check dur­ing that peri­od. This could pro­vide a strain on the employee’s per­son­al finances and could cre­ate major issues.
  3. If an employ­ee no longer works for you and their final pay­check is not enough to cov­er the out­stand­ing bal­ance of the deferred tax­es, then the employ­er can be left on the hook for pay­ing the tax­es. Even with a con­tract in place as men­tioned ear­li­er, the employ­er could have to resort to civ­il action to col­lect the bal­ance from the employ­ee. This could require legal costs that the employ­er would have to pay to pur­sue this option. Either way, this would mean addi­tion­al expens­es the employ­er would pay out of their own pock­et.

If you have any ques­tions over the pay­roll tax defer­ral and how it applies to you, feel free to call MACKEY at 859–331-7755. We under­stand that nav­i­gat­ing these times can be dif­fi­cult and we are here to help!