August 31, 2020

IRS Issues Guidance on Payroll Tax Deferral

The IRS issued guidance on the payroll tax deferral from President Trump’s Executive Order. The text of the IRS notice can be found here. The important points of this guidance are as follows:

  • The payroll tax deferral applies to the 6.2% employee side of Social Security taxes.
  • The deferral period is for payroll pay dates occurring from September 1st through December 31st, 2020.
  • Wages must be less than $104K annualized on each payroll where the tax is deferred. In other words, the deferral eligibility is made on a pay-period-by-pay-period basis. The below schedule will help determine these gross salary/wage limits:
    • Weekly pay = $2,000
    • Biweekly pay = $4,000
    • Semimonthly pay = $4,333.33
    • Monthly pay = $8,666.67
  • Any amounts that normally excluded from box 3 Social Security wages on a W-2 will not count towards the above limits
  • Employers must withhold the deferred taxes, in addition to the regular resumed payroll tax withholdings, from January 1st through April 30th, 2021. Penalties and interest would begin accruing thereafter.

Under the IRS guidance on payroll tax deferral, it appears employers are on the hook for the repayment of the taxes. This could cause a problem if an employee who deferred payroll taxes departs from the company prior to repaying the deferred taxes. The Notice states that the employer can make alternate arrangements to collect the Applicable Taxes. How exactly that would be done, and whether it would be possible to collect, is up for debate.

Our advice to employers is to steer clear of the payroll tax deferral as it presents more risk than reward. Our advice to employees is to take advantage of it if your employer offers it because there is a chance it could be forgiven in the future (watch this video for our reasoning).

About Dark Horse CPAs

Dark Horse CPAs provides integrated tax, accounting, and CFO services to small businesses and individuals across the U.S. The firm was founded to save small businesses (and their owners) from subpar accounting and tax services and subpar client experiences. These small businesses are Dark Horses among their larger and more well-known competition. Being a Dark Horse CPA means advocating for small businesses by bringing them the tax strategies and accounting insights previously reserved for big business. Get a quote today.

Rotating wordsDark Horse logo

Get a personable & experienced CPA who will partner with you to achieve unparalleled results.

Get Started

Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The Dark Horse Advisor's website and its associated links offer news, commentary, and generalized research, not personalized investment advice. Nothing on this website should be interpreted to state or imply that past performance is an indication of future performance. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with a tax professional before implementing any investment strategy. Investment Advisory Services offered through Dark Horse Advisors, LLC, an Investment Advisor registered with the State of Nevada. Registration does not imply a certain level of skill or training. 

Certain Investment Adviser Representatives of Dark Horse Advisors, LLC are dually registered with DFPG Investments, LLC as Registered Representatives of the broker-dealer and Investment Adviser Representatives of the Registered Investment Adviser. Securities offered through DFPG Investments, LLC member FINRA/SIPC.