WASHINGTON—The Treasury Department on Aug. 28 released long-awaited guidance for businesses on how to implement President Donald Trumps payroll tax relief plan.
Trump signed an executive order on Aug. 8 that postponed the collection of the employee-side payroll taxes paid from Sept. 1 through the end of the year.
The three-page notice by the IRS clarifies that the payroll tax break applies only to wages below a biweekly threshold of $4,000. It also makes employers primarily responsible for paying the deferred taxes next year.
The good news for employers is that they only have to pay attention to the $4,000 per pay period, according to Pete Isberg, vice president of government relations at payroll processing firm ADP.
“Thats the only threshold. So that makes it a lot easier for employers to calculate and determine whos eligible,” he told The Epoch Times.
The most surprising part of the guidance, according to tax experts, is that employers are liable for repaying the amounts deferred, while many had expected that the employees would pay them with their annual IRS Form 1040 tax return.
“Employers have the burden of accruing and accounting for the amounts that were deferred and then starting in January, evenly over a four-month period, withhold those taxes and pay them to the IRS,” Isberg said.
The implementation raises some questions for companies and employees.
“What if the employees leave their job? They might defer some taxes in September and October and then they might leave or change jobs. Does the employer have the opportunity to collect those deferred taxes before the person leaves?” Isberg asked.
The current Social Security tax rate is 12.4 percent, divided evenly between employers and employees, up to the taxable maximum of $137,700. The CARES Act signed into law in March allowed companies to defer the employer portion of payroll taxes from March 27, 2020, through the end of the year.
In order to provide some temporary relief for workers, Trumps executive order permits companies to defer the employees obligation to pay the 6.2 percent taxes. However, implementation would be optional for companies.
The program might be optional for employees as well, according to Isberg, but that isnt addressed in the guidance.
“Assuming that employer wants to give employees the option to defer or not defer—which they probably will—how do you administer that? Thats a question you actually have to pose to 100 million workers in the next few days.”
Explaining to employees, record keeping, and administering all these will be a big workload for employers, he added.
Workers will get a net pay increase of 6.2 percent from September to December if their employers opt into the payroll tax deferral.
The next year in January through April, however, itll be exactly the opposite.Read More From Source