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WCI, Inc
Aug. 26, 2020

Payroll Tax Deferral

Payroll associations submit comments on the payroll tax cut

The American Payroll Association (APA) and the National Payroll Reporting Consortium (NPRC) have submitted comments on the President’s recent Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster (see Payroll Management Guide Report Letter 2664, August 18, 2020.) The letter contains six employer issues, summarized below, for consideration:

  • The letter asks whether employees should be required to opt in or out of the deferral, and in what form. Any requirement that employees opt in or out could result in employers having to manage informational notices and election forms of potentially over 100 million affected employees in the coming weeks. The guidance should permit transactions to be electronic.
  • Clarify that employers will not be held liable for employee social security taxes deferred. Employees should pay any deferred amount with their 2020 income tax return, IRS Form 1040.
  • Minimize related reporting requirements. There should be no new entry boxes on Forms W-2 or 941. Qualifying Social Security wages paid from September 1 –December 31, and/or Social Security tax deferred, could be a coded entry in Box 12 of Form W-2.
  • Clarify that employers should apply only a per-pay period amount (e.g., $4,000 biweekly) to determine eligibility. Each payment of wages should be evaluated in isolation or employers should not be required to calculate average wages over a time period to determine whether to apply the deferral
  • There should be no phase-out formula for employees near the $4,000 biweekly level
  • If an employer implements the deferral program after September, there should be no adjustments for prior payrolls. (NPRC/APA Letter, August 14, 2020.)

AICPA asks IRS, Treasury for guidance on payroll tax deferral

The American Institute of CPAs (AICPA) has urged the IRS and Treasury in an August 12 letter to issue guidance on President Trump’s payroll tax deferral memorandum. The executive action signed by the president on August 8 instructs Treasury to defer the collection and payment of payroll taxes from September 1 through years-end for eligible employees.

The presidential memorandum to defer payroll taxes has "caused confusion and concern among accountants and businesses," according to the AICPA. Thus, in its letter released on August 13, the AICPA asks IRS Commissioner Charles "Chuck" Rettig and Assistant Treasury Secretary David Kautter to issue guidance on a number of related issues, including the following items:

  • Guidance stating that the deferral is voluntary and that an "eligible employee" is responsible for making an affirmative election to defer the payroll taxes;
  • Guidance stating that an "eligible employee" is an employee whose wages are less than $4,000 per bi-weekly pay period;
  • Guidance stating that the $4,000 limit should apply separately to each employer of an employee; and
  • Guidance stating a payment due date(s) for the deferred taxes and a mechanism for employees to pay the deferred taxes.

Payroll tax forgiveness

Notably, Treasury Secretary Steven Mnuchin indicated earlier this week that participation in the deferral of payroll taxes is not mandatory. "We cannot force people to participate," Mnuchin said in a televised interview. "But I think many small businesses will do this and pass on the benefits." Additionally, Mnuchin alluded that Trump intends to make the deferral a cut if reelected, essentially forgiving the deferred taxes.

To that end, White House economic advisor Larry Kudlow attempted to clarify Trump’s position that the payroll tax deferral should be forgiven rather than delayed. And when Trump talks about "terminating the payroll tax", he is only referring to those taxes specified within the presidential memorandum, not the entire payroll tax as a whole, according to Kudlow.

"I just want to be clear that the president is saying that he will provide forgiveness; he will terminate the deferral on a forgiveness basis," Kudlow told reporters at the White House on August 13. "That is what he is saying just to be clear…there was some confusion about that."

Additionally, Kudlow told reporters that the payroll tax deferral would apply to the self-employed. Although the applicable presidential memorandum is not currently written as such, Kudlow added that the administration "will make a technical change to it."

Source: WCI Answers Now ©2020 CCH Incorporated and its affiliates. All rights reserved.

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