President Trump issued an Executive Order (EO) effective August 8, 2020, directing the Treasury Department to use its authority pursuant to section 7508A of the Internal Revenue Code to defer the withholding, deposit, and payment of certain payroll tax obligations. This labor–management initiative is optional but involves broad and potentially significant financial implications for every employer. The EO applies to the 6.2 percent Social Security payroll tax normally deducted from an employee’s pay and would affect workers whose biweekly pay is less than $4,000 on a pretax basis. The determination of whether the deferral applies is to be made on a paycheck to paycheck basis.
Deferral under the EO is optional and employers that elect to defer may do so on certain wages paid between September 1, 2020 and December 31, 2020. Employers that fail to pay any owed taxes by May 1, 2021, may be held liable for the tax, penalties and outstanding interest.
It is important to note that the employer, consistent with federal withholding regulations, is responsible for paying the deferred payroll withholding taxes but allows that the deferred taxes are to be withheld from employees paychecks beginning in January 2021. Should the employee be laid off, quit or the company cease to operate the employer would need to collect the withholding taxes or make payment on behalf of the former employee.
The notice clearly states, “If necessary, the [employer] may make arrangements to otherwise collect the total Applicable Taxes from the employee.” But the notice provides no further guidance as to what this might mean. It also provides no guidance on what happens if the person is no longer an employee and the employer is unable to collect the unpaid taxes.
The attached Payroll Tax Deferrals FAQs issued in SMACNA’s COVID-19 Connect Community on September 5, 2020, are intended to provide SMACNA members some clarification and are based on information and guidance issued by the IRS as of September 2, 2020.