On Friday, U.S. Treasury Department released its guidance implementing President Trump’s Executive Order to defer the employee portion of the payroll tax owed from September 1 until the end of the year. The plan is voluntary for employers and allows payroll tax payments to be deferred until May 1, 2021. The guidance suggests that taxes deferred will be owed by employees rather than employers, but exactly how the IRS tracks who owes what is unclear. The guidance states that companies “may make arrangements to otherwise collect the total applicable taxes from the employee.”
The guidance is silent on a major concern from businesses of whether they would be on the hook for paying back the deferred taxes of workers who later quit. The guidance also does not address whether individual employees can opt out of the program, effectively leaving it up to the employer to decide. The tax break will only be available to employees who earn less than $4,000 per biweekly paycheck, which is to be interpreted on a paycheck-by-paycheck basis without regard to how much someone earned in another pay period.
The Trump Administration is promising that the deferred payroll taxes owed will eventually be forgiven; however, legally it would take an act of Congress to forgive payroll taxes owed during the deferral period. MGA cannot say with any degree of certainty whether Congress would act to forgive deferred payroll taxes. MGA members should evaluate the potential risks to its employees and its potential future tax liability before deciding whether to opt into the payroll tax deferral plan.
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