COVID-19, General, Tax & Assurance Guidance

Payroll Tax Deferral IRS Guidance

Posted on August 28, 2020 by

Sue Tuson

Sue Tuson

Share This

Share on facebook
Share on twitter
Share on linkedin
Share on email

UPDATE:  IRS Guidance Issued

Late Friday, August 28, 2020 the Treasury issued guidance on President Trump’s executive order deferring the payment of certain employee payroll taxes. The period eligible for deferral is September 1, 2020, and ends December 31, 2020.  This deferral is only available for those earning a bi-weekly pay period of less than $4,000 threshold amount.

The determination of the applicable wages is made on a pay period basis.  If the amount of wages or compensation payable to an employee for a pay period is less than the corresponding pay period threshold amount, then that amount is considered applicable wages eligible for deferral of the employee share of social security tax.  An Affected Taxpayer must withhold and pay the deferred taxes ratably from wages paid between January 1, 2021, and April 30, 2021, or interest, penalties, and additions to tax will begin to accrue on May 1, 2021, on any unpaid balance.

The guidance is very limited; it doesn’t discuss what happens if the employee terminates employment nor does it provide any insight on what happens if employee earnings post deferral date aren’t enough to cover the taxes.  The guidance can be found in IRS Notice 2020-65.

As the clock clicks down to the September 1 deadline, there is still no guidance from the IRS on President Trump’s payroll tax deferral directive.

Employers are finding it difficult to move forward with implementation when they don’t fully understand their responsibilities related to the deferred taxes. Currently, there has been no change in the law that relieves the employer of the responsibility to withhold and pay these taxes.

Most employers that have had to deal with payroll taxes have been warned of the seriousness of handling funds withheld from an employee’s paycheck.  After all, this is not the employer’s money, it belongs to the employee and the employer is trusted to remit it to the appropriate taxing authorities. For those employers that don’t meet their obligations, they risk substantial Trust Fund Recovery Penalties. Penalties can be assessed against any person who is responsible for collecting and paying withheld income and employment taxes and willfully fails to collect or pay them. Per IRS guidance, a responsible person is a person or group of people who have the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes.  This person may be:

  • An officer or an employee of a corporation
  • A member or employee of a partnership
  • A corporate director or shareholder
  • A member of a board of trustees of a nonprofit organization
  • Another person with authority and control over funds to direct their disbursement
  • Another corporation or third-party payer
  • Payroll Service Providers (PSP) or responsible parties within a PSP
  • Professional Employer Organizations (PEO) or responsible parties within a PEO
  • Responsible parties within the common law employer (client of PSP/PEO)

For willfulness to exist, the responsible person:

  • Must have been, or should have been, aware of the outstanding taxes and
  • Either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required)

Using available funds to pay other creditors when the business is unable to pay the employment taxes is an indication of willfulness.

Treasury Secretary, Steven Mnuchin, has stated that it is not mandatory for employers to participate in the deferral and many large employers have stated that they will not stop withholding until IRS guidance is provided.

Sue Tuson

Shareholder

With her advanced technical skills and experience with complex global businesses, Sue is known to be a creative & responsive international tax advisor.

Related Insights

Tax & Assurance Guidance

Foreign Tax Withholding: What You Need to Know

Posted on April 26, 2022 by

Rob Cheyne
Making service payments to a foreign person is a common cross-border transaction. U.S. taxpayers need to be aware of the applicability of withholding tax and related reporting requirements to ensure they comply and avoid unintended consequences. A U.S. payor must collect withholding tax and remit it to the IRS in the case it is applicable.

Tax & Assurance Guidance

SALT Relief for Partners and S Corps

Posted on February 23, 2022 by

Miroslav Georgiev
With small businesses supporting nearly 47% of U.S. employees, states have been advocating for pass-through entities, operating partnerships and S corporations that have been harshly impacted by the Tax Cuts and Job Act ‘s state and local taxes deduction limit. Recent legislative activity is finally providing relief for many of these businesses. 

Tax & Assurance Guidance

IRS Provides Relief on K-2 and K-3

Posted on February 17, 2022 by

Margaret Amsden
In an attempt to provide more transparency with regard to reporting of foreign activity and/or information to foreign owners, the IRS came out with two new forms: Schedule K-2 (an addendum to the Schedule K) and Schedule K-3 (an addendum to the Schedule K-1). Learn about the latest K-2 and K-3 reporting requirements issued by the IRS.

Sign up for our newsletters

Get general business and industry-specific news and knowledge straight from our accounting specialists.

The Sound of Automation Podcast

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Insights & Perspectives

Data-driven decision making: 3 key insights for business owners

What does it take to build a data-driven business? For self-reliant leaders who feel they’ve hit a plateau when it comes to scaling a business, adopting a data-driven approach can be a breakthrough success strategy. Using data in a more focused way helps good engineers become good entrepreneurs. It’s about creating balance. Here we take a look at key insights for business owners when using data in decision making.

Read More

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Skip to content