Seizing the power of his podium and his pen, US President Donald Trump on Saturday moved to bypass the nation’s elected lawmakers as he claimed the authority to defer payroll taxes and extend an expired unemployment benefit. (Aug. 8)
I still don’t know whether or not I will have a “Payroll Tax Holiday” between now and the end of the year. Do you?
Employers, it turns out, have the option on whether to opt in or out of the program authorizing them to defer collecting Social Security tax on wages earned by qualifying workers between Sept. 1 and the end of this year.
It appears most plan to continue to collect and remit those taxes on behalf of their employees.
“The biggest issue is who is on the hook,” said Matthew B. Hickey, chair of Crowe & Dunlevy’s taxation practice group.
The Social Security tax deferral program was created by President Donald Trump in August through an executive order he issued directing the Treasury Department to develop a program to defer the collection of certain payroll taxes from workers who make $4,000 or less in a biweekly pay period.
The same order, which specifically involves Social Security tax withholdings contributed to the U.S. government (6.2% of an individual’s gross pay), also directed the agency to explore whether there might be a way to eliminate the tax permanently.
Hickey said subsequent guidance indicated employers could choose whether to defer the collection of the tax.
A concern, he said, is that the guidance also informed employers that any employee with deferred tax collections would be required to repay those to the federal government on wages earned during the first four months of 2021.
That would boost the Social Security tax on your or my gross wages to 12.4%, taking a much bigger bite out of what we would earn during that period.
“If you choose not to participate now, your employees might grumble a little bit,” Hickey said, “but I am confident they will grumble if you double dip on them during the first four months of 2021.”
A much more compelling reason for businesses to take a pass on the deferral, he continued, is that the Internal Revenue Service has told employers they will be required to repay those deferred taxes in 2021 in cases where an affected employee no longer works for a company.
“There could be a variety of reasons there are no wages to withhold from in 2021, such as when an employee leaves a business or a business goes under. If you (as an employer) participate in the program, you are obligated to repay those dollars back into the system.”
That, he said, is a headache most business leaders would prefer to avoid.
“I haven’t talked to any of our clients who will take advantage of that.
L.J. Suzuki, an adviser at CFOshare, an outsourced finance department for small businesses, said that’s what he has been hearing, as well.
CFOshare provides business owners with services that help them with forecasting, growth strategy, pricing, distress and turnarounds, mergers and acquisitions.
“Every entrepreneur I’ve spoken with sees no advantage in offering the Payroll Tax Holiday to their employees. At best, the employees would be confused and have lots of questions. At worst, it will be an administrative nightmare and result in higher tax payments for the business,” Suzuki said.
Trump’s executive order authorizing the deferral comes in the midst of an environment where business owners across the country are still contending with unfavorable economic conditions caused both by government-required lockdowns that happened earlier in the year and observed drops in demand from consumers for goods and services.
While the economy still faces significant challenges, consumer demand has rebounded somewhat recently, and Hickey said this week that most of Crowe & Dunlevy’s business clients remain cautiously optimistic about the future.
“They seem to be doing OK for now, forging ahead and taking advantage of opportunities where they see them,” he said.
Jack Money has worked for The Oklahoman for more than 20 years. You can follow him on Twitter: @jackmoney48.
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