New Payroll Tax Twists in 2020

October 2020

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You may have noticed something new at the top of this newsletter. We have updated our logo for a fresh new look. While we may have a new look, we still have the same dedicated team of professionals to assist you with all of your accounting needs.

New Payroll Tax Twists in 2020

Complications under executive order

In August, President Trump signed an executive order creating a “payroll tax holiday” for employees, effective on September 1. But the celebration may be short-lived. Absent any further developments, the deferred tax will become due in 2021, when withholding is scheduled to increase.

Background: Employees must meet federal payroll tax obligations during the course of the year. First, an employee owes Social Security tax of 6.2% on wages up to an annual “wage base” ($137,700 for 2020). Any amount above the wage base is not subject to the Social Security tax.

Second, an employee must pay a 1.45% Medicare tax on all wages. There is no annual dollar limit on the Medicare portion of tax. (An employer must pay its share of payroll tax at the same rates.)

Employers are responsible for withholding the tax owed by employees and depositing it with the IRS. But the executive order on payroll tax deferrals creates some new wrinkles.

How it works: For employees who earn less than $4,000 in a biweekly payroll period paid from September 1 through December 31, the Social Security tax that would normally be due is deferred. Similarly, if an employer uses a weekly pay period, the deferral applies to an employee earning less than $2,000 per week.

If your employer has opted to implement this change, you have probably noticed an increase in take-home pay. This will continue through the rest of the year. Employers are not required to do this.

But the payroll tax deferral does not permanently relieve obligations for paying the deferred Social Security tax. As things stand now, employees will face increased withholding in 2021 to make up for any shortage. If you are not prepared for this change, it might cause some financial hardship. Due to the complexity of this provision, most employers are not offering their employees the choice of taking advantage of the payroll tax deferral or bypassing it.

Note that the executive order holds employers, not individual employees, responsible for paying the deferred amounts to the IRS by April 30, 2021. The deferral may cause other complications for employers if an employee quits or retires before 2021 or if workers are seasonal. Thus, the payroll tax holiday could trigger some additional scrambling in 2021.

Reminder: Do not confuse the new payroll tax deferral for employees with the deferral for employers included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Under the CARES Act provision, an employer can defer the 6.2% Social Security tax it owes for March 27, 2020 through December 31, 2020. Half of the deferred amount is due at the end of 2021 and the other half must be paid by the end of 2022.

Final words: The IRS is expected to issue more guidance on this matter. Other changes could be in the works following the election. We will keep you posted on any important new developments.

Eight Tips for Recruiting Employees

Practical advice for small businesses

The success or failure of a small business can often be traced back to the performance of several key employees. This is especially true during these uncertain times. So how do you get the best and brightest to work for your firm? Although there are no guarantees, here are eight helpful hints.

1. Search for the best candidate. Of course, this is easier said than done, but some basic principles should serve you well. Emphasize experience, intellect and the ability to work in a team environment. Someone who has the exact skill level you need and has done the same job, or worked in a comparable position, has a decided edge.

2. Go outside the usual pool. Do not limit your search to candidates who respond to postings. Establishing a robust social media presence can lead to new hires. Also, develop relationships with college placement officers, recruiters and executive search firms. Mingle with others in the industry to help build a candidate pool before you actually need it.

3. Look in-house. One common mistake small business owners often make is ignoring the talent that is already at the company. Is someone in your organization deserving of a chance to prove what they can do? Not only does this boost employee morale, you may benefit from having an employee who already knows the ropes.

4. Hone your reputation. There is something to be said for being widely-known as a good employer. For instance, you might benefit from employment practices such as high retention, extra rewards, participation in various activities and flexibility in balancing life and work. You will not have to find employees—they will find you.

5. Utilize current employees. You can involve employees in the hiring process in several ways. For instance, you might seek recommendations from them, have them assist with reviews of qualifications and contribute to interview sessions. And, if you are known as a good employer (see #4), the job candidates will get the message.

6. Offer an attractive package. The old saying, “you get what you pay for” often holds true. Thus, the prospective compensation should include a competitive salary plus valuable fringe benefits. At the very least, candidates will likely desire adequate health insurance coverage, retirement plan options and paid leaves, even when the employer is not legally required to provide them.

7. Recruit through your website. Your website is your company’s calling card in many respects. Not only does it update visitors on new developments, it may be used for recruiting employees who share similar values and/or interests. Create an employment section describing any available positions. Include information about the kind of people you want to be working for your company.

8. Do your homework. Make sure you carefully check references of candidates who are in serious contention. If you uncover problems, it could avoid a potential catastrophe later on. In the same vein, if you are on the verge of hiring someone, do background checks to the extent it is allowed by law.

Finally, do not be pressured into making a decision before you are ready. Take the time to “get it right.”

Ron Austin, CPA

Brian Eisenmenger, CPA

Brian Hagene, CPA

Brett Mathieson, CPA

John Straus, CPA

www.MMAadvisors.com