The Executive Order for Payroll Tax Deferral
The Executive Memorandum signed by the President August 8, 2020, providing for the deferment of some payroll taxes. This was followed by Internal Revenue Service Notice 2020-65 which offered some clarity on provisions of the plan. In short, employers can defer the withholding, deposit, and payment of the OASDI (6.2% Social Security) portion of employee payroll taxes for the period September 1, 2020, through December 31, 2020, as a means to inject cash directly to employee paychecks.
However, this is only a deferral at this time, meaning that the taxes in question would have to be paid via paycheck deductions during the period January 1, 2021, through April 30, 2021. While the President vows to forgive these taxes and make additional permanent cuts to payroll taxes if re-elected, the political winds and outcome of November’s election leaves this an uncertainty. Further, abolishment of this debt would require an act of congress which is highly unlikely given the democrat-controlled House of Representatives.
At this time, the deferment of these payroll taxes is essentially a short-term, interest-free loan which will have to be repaid via smaller employee paychecks in the first four months of 2021.
Adding to this, complicated software adjustments are necessary to implement this program by payroll providers. There are also accounting obstacles for many small businesses that perform their own payroll functions. Lastly, questions remain as to how these deferred taxes could be collected should an employee separate from their employer midstream.
In its current form, the Executive Order and resulting IRS guidance appear to be more of a complication than a cure.
As always, we at Franskoviak Tax Solutions are staying on top of these developments daily, and we continue to be your source for navigating these changing economic times. Call us today for a consultation (248) 524-5240 – Info@franskoviakcpa.com.
Michael Franskoviak, CPA
President / CEO
Franskoviak Tax Solutions
3155 W Big Beaver Rd Suite 218
Troy, Michigan 48084