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Payroll Tax Deferral
Based on recent developments we would like to provide some information and guidance regarding President Trump’s Payroll Tax Deferral Memorandum and subsequent guidance issued by the IRS (Notice 2020-65).
What is payroll tax comprised of?
Payroll taxes are paid by both employers and employees, this is a shared burden. Both parties pay 6.2% of wages to social security (up to $137,700) and 1.45% to Medicare. The total tax Burden is equal to 15.3% of total wages (For purposes of this discussion let us omit FUTA and SUTA as they are not applicable.)
The Notice allows employers to temporarily suspend collecting the employee portion of Social Security (6.2%) effective September 1st to December 31st, 2020. Only employees who earn less than $4,000 bi-weekly ($104,000 annually) will be eligible to participate. Employee’s will be required to repay this portion of social security tax between January 1st – April 30th, 2021 to avoid penalties, interest and other taxes.
What remains unclear
What to do
Currently, we do not recommend any changes to your current payroll process. As the treasury department becomes more transparent in the process and requirements, we will continue to update and guide clients in the process.
Jordy Bernhard | 09/03/2020