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U.S. Treasury Releases Payroll Tax Guidelines

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Sept. 8, 2020—President Trump issued an Executive Order on Aug. 8 to establish a voluntary deferral of workers’ federal payroll taxes for Sept. 1 to Dec. 31, and the U.S. Treasury Department issued a three-page guidance document on Aug. 28 on how the program would work, according to a SEMA press release.

The Treasury Department is giving participating companies from Jan. 1 to April 30, 2021, to remit the deferred taxes, implying that companies may give workers an option of double withholding their Social Security tax during the first quarter of 2021 as one way to remit the owed taxes.

The payroll tax deferral program applies to individuals with wages below a bi-weekly threshold of $4,000, which is an annual salary of $104,000 a year or less.With this, the deferral only applies to the 6.2 percent Social Security tax, not the 1.45 percent Medicare tax.

The payroll tax deferral program has received an indifferent response from the business community and Congress, according to the release. Since the payroll tax is simply being deferred, not forgiven, many companies are concerned about employees understanding this distinction, or being able to pay the future obligation. With this, businesses would then be required to remit the deferred taxes after Jan. 1, even if the employee has not arranged with the company to reimburse the owed taxes. For example, an employee earning the maximum salary under the 13-week deferral program would owe around $1,612 in back taxes.

The Trump Administration has stated its desire to forgive the taxes, but that requires Congress to pass legislation. The release suggests that this action is considered unlikely since the taxes are used to fund the Social Security program.

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