IRS Payroll Tax Deferral - Should You or Shouldn't You?
Greetings, GO-HR friends and clients.
Two emails in one week. Things are heating up again!
We have heard from a few clients today asking if they must do the payroll tax deferral that started this week. Please note, I am not an accountant and I do not play one on TV, so this is strictly MY thoughts on this topic. If you want to review the IRS guidance, here you go. You may also want to talk to your CFO or similar finance or accounting professional for what’s best for your business and employees.
This is a payroll tax deferral; it is not a forgiveness of these taxes.
Interpretive guidance indicates it is the employer’s option whether to participate or not. Nothing indicates employers must do it at risk of any penalties.
The deferral period is September 1 – December 31, 2020. The payback period is January 1 – April 30, 2021.
It can only be applied to employees with taxable wages less than $4,000 bi-weekly.
To “pay it back,” employers are likely going to have to double up on their portion of the tax deductions, so what looks like a paycheck boost these last 4 months will then look like a paycheck decrease in the first 4 months of 2021. (Employees will also have to plan on how to “pay back” their portion that was deferred, too.) For many of our clients those first few months in 2021 are their slowest in the year…many can’t afford to double up on anything that impacts their cash. Also, the doubling up of the tax deductions next year could inordinately (and thereby negatively) impact your lower-wage employees.
We’ve heard tell that the tracking and paperwork can be a nightmare, so if you opt to do this for your employees, be prepared.
Also, failure to pay it back could result in interest, penalties, and more headaches and expenses.
Finally, if you have a seasonal workforce during the last four months of 2020 and you participate in deferrals, how will you collect those dollars next year to pay up after those seasonal employees have left?
If your employees come to you and ask you about this, we suggest you have a candid discussion as to why this may not be in the best interest of the company or the employees (if that is what you determine in conjunction with your CFO). If the employee is struggling financially, there may be other assistance he or she can tap into, including checking in with their financial planner about any options.
If you do decide to do the deferral, we recommend that you check with your payroll company on how they can help you track this information, and also develop and communicate a policy on the additional deductions you will be withholding from employees’ paychecks next year, including a policy that addresses the impact on their final pay if they leave before the money is collected.
As always, we have several colleagues and professionals we would be happy to refer you to for your questions.
Sharon DeLay, MBA, SPHR, SHRM-SCP, CPCC
Certified GUSTO People Advisor
GO-HR (a dba of BoldlyGO Career and HR Management, LLC)
[O] 614-473-0122 ▪ [C] 614-233-1522