If you hadn’t seen the news announced earlier this month, President Trump signed an Executive Order on August 8 to break the stalemate in Congress. Though offering a much broader continuation of benefits released under the CARES Act, one of the key provisions was one that deferred payroll tax obligations of employees.
Executive Order Ordering Payroll Tax Deferral
As discussed in a recent Accounting Web article, the executive order signed August 8 included a provision to defer payroll tax starting September 1. In this, employees would not be required to pay their share of the 6.2 percent Social Security tax that normally applies to an annual wage base ($137,700 for 2020). The grace period would last from September 1 through the end of the year. The deferral is generally available to an employee earning $4,000 every two weeks, which works out to $104,000 for the year.
In short, this will mean more money in your pocket—but what will it mean in the long run? Like the Payroll Tax deferral included in the original CARES Act, this is only a deferral—not forgiveness. Under the CARES Act, an employer can defer the Social Security tax component of these payroll taxes for the period between March 27, 2020, the date of enactment, and December 31, 2020. The employer may pay 50 percent of the required Social Security tax by December 31, 2021 and the remaining 50 percent by December 31, 2022.
The Executive Order, however, has its own nuances. The AICPA is demanding clarification, Congress is likely to challenge the EO on constitutionality, and many are wondering what needs to be done.
Questions Posed by the AICPA
As discussed in the recent article from Accounting WEB, the American Institute of CPAs (AICPA) has submitted a letter to Treasury and the Internal Revenue Service (IRS), requesting additional guidance and clarification and providing recommendations. Among the areas in which the AICPA has requested clarification:
- Guidance stating that the deferral is voluntary and that an “eligible employee” is responsible for making an affirmative election to defer the payroll taxes.
- Guidance stating that an “eligible employee” is an employee whose wages are less than $4,000 per bi-weekly pay period.
- Guidance stating that the $4,000 limit should apply separately to each employer of an employee.
- Guidance stating a payment due date(s) for the deferred taxes and a mechanism for employees to pay the deferred taxes.
Stay Tuned: COVID-19 Resources from Controllers Council
Across the nation, companies are struggling to keep up with all the changes that have taken place in 2020. Whether it’s the nuances presented under the CARES Act, the questions pertaining to PPP forgiveness, or the above mentioned payroll tax deferral, it pays to keep up with all the latest.
That’s where we come in. The Controllers Council is striving to provide you the latest tips and resources needed to stay afloat as the pandemic plays out. Subscribe to our newsletter and learn more about becoming a member today!