Payroll tax exective order

[Rapid Robert]

I didn't say you could wait until April to deposit taxes that were withheld in January. I said you don't have to pay the tax until April 30th. Since the pay period for the withholding was during the deferral period, the actual withholding can take place at anytime prior to April 30th. The comment was that it had to be withheld ratably. No, it just needs to be withheld and paid over to the government sometime before May 1 to avoid penalties and interest, assuming you deposit the tax timely once withheld. So in theory, you could withhold (or collect) the entire deferred tax on April 30, 2021 and deposit it with the government on that same day and avoid the penalty.

So now the deadline for doing the withholding without penalty is all the way until 12/31/2021, and of course the Form W-2c wouldn't be issued until after that date as well. And more time for employees to leave the job before the employer catches up on all the withholding. What a lot of useless busywork for the SSA, payroll service providers, and IRS, especially given that if they do choose to use the ratable approach, they have to reprogram everything again.

[Burke]

See also the recent Taxbook Update Notice which discusses how to report this.

[TaxGuyBill]

Yet another reason why employers would not want to suspend the Social Security tax. That sounds like a nightmare. Extra work (and cost) for the employer and lots of confusion for the employees that receive the W-2c.

[rbynaker]

I thought this might be relevant info so I'm tacking it onto this older thread.

https://www.irs.gov/forms-pubs/form-...notice-2020-65

From my IRS e-News this week, "In short, the 2020 Form W-2 must reflect only the amount of Social Security tax actually withheld from 2020 wages, and a Form W-2c will need to be issued when the 2020 Social Security tax is withheld in 2021."

Rick

[Burke]

From what I am reading in the press, hardly any employers (including some very large ones) are implementing this suspension.

[Rapid Robert]

See post #8 for a link to the IRS notice.

There is now a new draft version of Form 941, just posted yesterday. Looks like changes to Lines 13b, 24, and 25.

https://www.irs.gov/pub/irs-dft/f941--dft.pdf

Looks like the IRS is still playing catch-up, the new 941 is not ready to be efiled for everyone yet, even though some affected employers may have already completed their last payroll of the quarter.

From IRS press release:

"Attention: Software Developers, Return Transmitters and Authorized IRS e-file Providers/EROs

IRS is updating the MeF system so filers may report the deferred amount of the employee share of social security tax.

Please refrain from e-filing Form(s) 94x Third Quarter Tax Year 2020 returns that have an amount on Page 3, Line 24 (Deferred amount of the employee share of social security tax not withheld and included on line 13b) until further notice.

IRS will issue a Technical QuickAlerts bulletin when the MeF system is updated. "

[Rapid Robert]

From what I read some federal government employees are having this deferral imposed on them whether they want it or not.

The most that could be deferred is around $2K by my calculations (8 pay periods at $4K each), so the mean or median amount will surely be much less than that. Not really going to make a big impact, especially since instead of a single payment like EIP, it will come in little dribs and drabs. Too bad there isn't someone in D.C. who is really good at deal-making, to turn this into an actual reduction in tax rather than deferral (assuming of course that it is a good idea to reduce payroll taxes at this time, which for a number of reasons it may not be).

I've also heard some express the idea that should the deferral later become an actual legal reduction, those who didn't get deferred will somehow be left out. I highly doubt it; most likely it would be a credit for everyone eligible, to be offset by deferral for those who were actually deferred.

[ATSMAN]

From Kiplinger

Will Businesses Defer Payroll Taxes?

As mentioned above, employers aren't required to suspend the collection and payment of the 6.2% Social Security payroll tax. In fact, a lot of employers are reluctant to follow the president's plan and halt withholding of the tax in 2020. They're worried about somehow being stuck paying the tax on their own and don't like having to double tax their employees in 2021.

As a result, don't be surprised if your employer continues to withhold Social Security payroll taxes from your remaining 2020 paychecks. The U.S. Chamber of Commerce and 32 other U.S. business organizations said that "many of our members will likely decline to implement deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law." That means no bump in your take-home pay.

Will the Tax be Excused?

If President Trump is re-elected in November, he has promised to push for the elimination of the deferred taxes so that workers will not have to pay them later. That would take Congressional action, so his ability to fulfill that promise probably depends on whether Republicans can retain control of the Senate and gain a majority in the House.

My comment: If you feel lucky roll the dice, but I am NOT recommending any of my clients to do this!

[Scarecrow]

That is correct. Sometimes when you read between the lines, you find out the IRS makes a lot of un-enforceable suggestions.

[Rapid Robert]

So if I understand Scarecrow correctly, the position he/she is recommending is that even though the IRS notice states the withholding must be done "ratably", there is no penalty for not doing so, therefore that part can be safely ignored. Kind of like how while there is always a failure to file penalty for late filed tax returns, the penalty is zero if you are due a refund, so it doesn't matter.

[Lion]

Ratably...

[Scarecrow]

There could be an opportunity to do some planning here. Lets assume an employee usually gets an end of year bonus, paid sometime in February or March of the following year. Wait until the bonus is ready to be paid to the employee, and then withhold the entire amount of the deferred taxes from the bonus check, so that the employee does not have to have his/her regular take home pay affected. This would work well for owner employees who usually wait until all bookkeeping is finished for the year before paying out a bonus based on company profits.

[Scarecrow]

Once the tax is actually withheld, it must be deposited timely. So no, the employer cannot withhold employee SS tax in January and wait until the end of April to pay it in (unless they are one of those rare very small employers on the quarterly cycle). The reference to "no penalty or interest" refers only to not making timely withholding in 2020, not to making timely deposits of amounts withheld whenever.
[/I]

I didn't say you could wait until April to deposit taxes that were withheld in January. I said you don't have to pay the tax until April 30th. Since the pay period for the withholding was during the deferral period, the actual withholding can take place at anytime prior to April 30th. The comment was that it had to be withheld ratably. No, it just needs to be withheld and paid over to the government sometime before May 1 to avoid penalties and interest, assuming you deposit the tax timely once withheld. So in theory, you could withhold (or collect) the entire deferred tax on April 30, 2021 and deposit it with the government on that same day and avoid the penalty.

[Rapid Robert]

the employer is free to pay it back anyway he/she/it wants to. The employer can pay the entire tax in one lump sum on April 30, 2021 with no interest or penalties, if he/she/it prefers.

After correcting my own error in an earlier post, I'll claim now that this statement is incorrect. The rules for monthly, semi-weekly, or next-day deposits have not changed, nor were they deferred separately under the EO. Once the tax is actually withheld, it must be deposited timely. So no, the employer cannot withhold employee SS tax in January and wait until the end of April to pay it in (unless they are one of those rare very small employers on the quarterly cycle). The reference to "no penalty or interest" refers only to not making timely withholding in 2020, not to making timely deposits of amounts withheld whenever.

See this footnote in the IRS notice that was released.

"The deposit obligation for employee social security tax does not arise until the tax is withheld. Accordingly, by postponing the time for withholding the employee social security tax, the deposit obligation is delayed by operation of the regulations. Thus, this notice does not separately postpone the deposit obligation."

Also, the body of the notice states "An Affected Taxpayer must withhold and pay the total Applicable Taxes that the Affected Taxpayer deferred under this notice ratably"

[Scarecrow]

The notice does not say to withhold 12.4% during those months. It says to withhold the deferred amounts "ratably". So that means you take the total deferred about and divide it by the number of pay periods in January through April and withhold that specific dollar amount per paycheck. The amount of wages in 2021 would not affect that amount.

The notice says penalties and interest do not accrue until May 1, 2021. That means as long as the total tax is paid over to the government prior to May 1, 2021, there is no penalty or interest. That means the employer is free to pay it back anyway he/she/it wants to. The employer can pay the entire tax in one lump sum on April 30, 2021 with no interest or penalties, if he/she/it prefers.