Payroll Processing and the New Tax Holiday
Times are tough, and they are also tight for a lot of people. Businesses across the country are grappling with the effects of the ongoing pandemic. With receipts languishing and layoffs looming, President Trump has directed the US Treasury Department and the IRS to implement a tax deferral holiday immediately. This executive action allows employers to opt-out of collecting their employee's Social Security taxes to help ease the financial burdens caused by the COVID-19 pandemic. This holiday will impact payroll processing for the near future, and it is important to understand how it works.
Key Points To Know
The tax holiday is optional, and not all employees are eligible for this tax deferral program. Employees whose wages are more than $4,000 biweekly or salaried at more than $104,000 per year are ineligible to participate. Those who are eligible have the option to cease deductions for Social Security taxes.
As of now, it is a tax deferral program. That means that employers will be required to repay the employee's portion for social security taxes owed when the deferral period ends. There is a possibility that this debt will be forgiven, but employers and employees should be aware that it is a slim possibility at best. These taxes will need to be paid by April 30th, 2021. Any amounts not paid by this date would be subject to penalties and interest.
During the tax deferral period, employers are still required to contribute their 6.2% toward Social Security. There is no option for employers to defer these payments at this time.
The tax deferral period is not indefinite. It currently extends from September 1st through December 31st of this year. Once the new year arrives, employers can collect additional social security payments from January 1st through April 30th, 2021. Once the amount owed is collected, employers are required to return individuals to their pre-deferral tax withholding schedule.
Will Employers or Employees Be Responsible?
This is the big "if" in the equation. It is currently unclear whether employers or employees will be held responsible for repaying these funds. Until this is clarified, employers should assume that they will and take action accordingly.
The US Chamber of Commerce and more than 30 trade associations have sent letters to the US Treasury voicing their concerns about the tax deferral holiday. The Treasury has yet to respond and appears to be waiting for Congress to take action.
In fact, Congress may take action through any one of the stimulus proposals currently on the table. Congress can vote to overturn the payroll tax holiday. Indeed, many legislators from both sides have voiced concerns that the tax holiday may render the Social Security program insolvent within just a few years. This would negatively impact people across the country, and both sides of the political aisle are keenly aware of how this would impact their chances at the polls.
Employers Have the Option To Participate
Participation is optional, and many large employers have opted out. JPMorgan Chase, Costco, the US House of Representatives, and others have declined to participate. For those who do, it is imperative to immediately adjust payroll processing procedures that make it easy for both employers and employees to track the amount of Social Security taxes that accrue during the deferral period.
For more about payroll processing, tax holidays, and other issues, contact the HR professionals at Greenlink Payroll. When you call us at (480) 385-2525 we will give you expert advice your company can use to stabilize and grow your business.