THE NEW "TAX HOLIDAY"
On August 28, 2020, the U.S. Treasury Department and Internal Revenue Service (IRS) issued Notice 2020-65 (Treasury Notice) implementing the Presidential Memorandum issued on Aug. 8, 2020, which allows employers the option to defer or postpone withholding and payment of Social Security tax for for wages paid September 1 through Dec. 31, 2020.
The tax holiday is optional for the employer to opt into. If you choose to use it, there are certain rules you’ll have to follow. Here are the most important things employers and employees should know about how the tax holiday works.
This tax deferral comes with a salary limit per employee. It only applies to employees whose wages are less than $4,000 biweekly or salaried workers who make less than $104,000 per year.
It took effect on September 1, 2020, and ends on December 31, 2020. Employers will still have to pay taxes for this period by April 2021. This means as an employer, you will need to collect additional social security from employee paychecks between January 1, 2021, and April 30, 2021, which covers the tax holiday period. If you fail to do so, you could incur penalties as described below.
If the amount of the deferred taxes isn’t paid by April 30, 2021, penalties and interest will begin to accrue. It’s also important to keep in mind that if an employee leaves the company before the tax is recouped, the employer MAY still responsible for paying this tax. Whether or not employers will be responsible seems to be the largest element of uncertainty around this legislation. We will follow this closely and provide an update once this guidance is determined.
*Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. Computer Payroll and its employees are not legal attorneys. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.