2020 Payroll Tax Deferral
Trump’s executive action regarding the payroll tax deferral has started this week. Here are the important things you will need to know:
- Payroll tax deferral is not mandatory, so it is up to each employer whether they implement it or not
- Time period is Sept. 1st thru Dec. 31st 2020
- Tax Savings – is on the 6.2% of employee Social Security tax
- It is a deferral, so it must be paid back Jan. thru Apr. of 2021, unless Congress forgives it.
If your employer chooses to approve it for your work, you will receive more money out of your paycheck for the next four months.
It is something that I feel will definitely benefit lower income workers during this time of economic uncertainty. However, employees and employers should be careful not to get caught up in the hype that you made more money.
If Congress does not forgive it, employees’ paychecks will be lower in early 2021. If you aren’t saving that money, you may accidentally go into further debt.
Possible downside for the employer
If as an employer you choose to approve the deferral, if your employees quits, as the employer, are still obligated to payback the payroll tax.
Treasury has stated that employers can “make arrangements to otherwise collect”.
However, we feel it will be difficult, if not impossible to collect from most defunct employees after they no longer work for you.
Have a policy to inform your staff
If employers decide to move forward and allow the payroll deferral for their employees, they should have a policy in place to make sure the employees know what they are getting into and that they may have to pay it back.
Additionally, you may need to have Human Resources draft a letter having the employees understand that if they quit, they are still obligated to pay it back.
Since there is so much fighting in Congress, it may become a political issue come January, and forgiveness is not guaranteed (however if it is forgiven, and your employer does not take advantage, it may cause low morale among staff for missing out on the benefit.)
It is on the employer to educate the employees as to the downside risk if Congress doesn’t forgives it. Employees should save that money, so they don’t accidentally overextend themselves in early 2021, and if Congress forgives it, they can consider the Payroll Tax deferral as a boon.
The creator of TaxedRight!