Helpful Guidance for Making Sense of Federal Payroll Tax Executive Order

In early August, President Trump announced a voluntary payroll tax holiday through the end of 2020, taking effect on Sept. 1. However, according to Internal Revenue Service guidance issued earlier this week, employers who opt to stop collecting payroll taxes for the next four months will need to remit double the payroll tax amount in the first four months of 2021 to make up the shortfall.

WANADA encourages all employers to discuss the merits of this option with their tax professionals, but stresses that the IRS’ guidance does not provide information on how back, uncollected taxes would be collected from workers who sever employment in the rest of 2020, or how workers who join a company would be able to be excluded from a double-tax collection in 2021. As such, the voluntary payroll tax seems to create large complicated issues for businesses that choose to participate.

The staff at the accounting and advisory firm BakerTilly has provided a summary of the president’s executive order. The analysis includes an important note that IRS guidance puts the onus on participating businesses to develop their own method of securing payroll tax repayment from severed employees before the holiday (and recoupment) period ends.

As the BakerTilly summary notes, the IRS guidance also does not provide any information as to whether individual employees could opt out of the payroll tax holiday, should their employer wish to implement it. The federal government itself is attempting to implement the holiday, but there are still many unanswered questions about how it would be enforced without depriving Social Security of much-needed revenue.

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