Update Given on President Trump’s Executive Order on the Payroll Tax Deferral

A bill has been proposed by the House legislation, “Support for Workers, Families, and Social Security Act,” in agreement with the Executive Order. To ensure the tax deferral will not hurt the Social Security Trust Fund, the bill would make transfers from the general fund to offset the reduced tax revenue. It is estimated that the tax deferral would reduce federal revenue by approximately $137 billion. It would take an Act of Congress to “terminate” the tax. Until that time, the deferred amount will have to be paid back between January 1, 2021, and April 30, 2021.

  • The liability to pay the deferred taxes remains with the employer regardless of their ability to collect it from the employees. As such, participation is currently optional and decided by the employer.
  • If the employer elects the deferral, a written opt-in is recommended for each employee to sign.
  1. Included in this notice should be a repayment clause explaining how the money will be repaid if the employee resigns or loses employment.
  2. Legal counsel should be consulted in preparation of this notice.
  • The payroll tax deferral is for workers earning less than $104,000 annually or $4,000 biweekly (or equivalent) and determined on a pay-by-pay basis.
  • Bonuses and commissions, even though paid in the same week, do not affect the $4,000/bi-weekly (or equivalent) threshold, because they are considered a different pay period.
  • Deferrals are not retroactive. If the employer chooses in October to participate in the tax holiday, they cannot go back to September and get a refund on taxes already withheld and paid. If an employee opts-in at a later date, the same rule applies.
  • If the employer has to pay back any of the uncollected tax (if the employee is no longer employed) the deferred tax becomes taxable income to the employee and reported on their W-2. This amount is grossed up so the employee pays all of the proper taxes.
  • Deferred tax that is unpaid on May 1, 2021, is subject to penalty and interest.
  • Deferred tax paid between January 1, 2021, and April 30, 2021, should be paid through EFTPS and coded as payment on notice and credited to the quarter in which the taxes were deferred.
For more information, contact your ACT representative or email us at info@actcpas.com.