Sep 09, 2020 | News

Payroll Tax Deferral – An Administrative Challenge

On August 8, 2020, President Trump signed an executive action in the form of a memorandum allowing employers the option to defer the withholding of Social Security payroll taxes (6.2% of wages) beginning September 1, 2020 for any employees earning less than $4,000 in a two week period ($104,000 annually).  Any deferred withholdings would have to be paid back through additional deductions from January 1 through April 30, 2021.

Administratively, adoption of this arrangement will be challenging.  Payroll systems will need to be revised and reprogrammed in a very short period of time.  Although not required, it would seem prudent to get individual employee acceptance of the deferral/repayment arrangement which will also present administrative difficulties.  However, the biggest risk could be that the employer will be held responsible for repayment of the amounts not withheld even if the employee is no longer with the Company.

There has been discussion of forgiving the deferred amounts but whether Congress would agree to do so is uncertain.  For some companies, taking the gamble of ultimate forgiveness of the payroll taxes withheld may make sense especially if they have a small number of employees whose continued employment with the company is relatively assured.  However, for most companies, it would appear that the deferral of payroll tax withholdings poses too many administrative challenges and financial risks to be worthwhile.

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