Portable Sanitation Association International

ASSOCIATIONINSIGHT Portable Sanitation Association International News BIWEEKLY EDITION SEPTEMBER 2, 2020 Page 8 CAUTION: The Payroll Tax "Holiday" Isn't All It Seems New guidance from the IRS states deferred Social Security taxes must be repaid in early 2021 On Aug. 28, the IRS issued Notice 2020-65, allowing employers to suspend withholding and paying to the IRS eligible employees' Social Security payroll taxes. The payroll tax "holiday," or suspension period, runs from September 1 through December 31, 2020. The "holiday" applies only to employees whose wages are less than $4,000 for a biweekly pay period and to salaried workers who earn less than $104,000 per year. Companies that suspend collection of employees' payroll tax are obligated to collect additional amounts from their employee's paychecks from January 1 through April 30 next year to repay the tax obligation. IRS Guidance is Minimal The IRS's Notice 2020-65 provides limited information for employers, and it leaves many questions to be answered. The needed clarification will probably come in follow-up guidance from the Agency, but there is no way to know when that will be. An open question is whether employers have the option to continue withholding Social Security FICA taxes as usual if they—or the affected employees—so choose. Even if complying with the guidance to cease this withholding is technically required, no one can say if employers will actually comply, especially given the likelihood of court challenges on the legality of the Executive Order that declared the "holiday." The Society for Human Resources Management (SHRM) quotes Pete Isberg, vice president of government relations at HR and payroll services firm ADP Inc. on this compliance question. "It's too early to say," says Mr. Isberg. Employers "are just now considering how the program would work." Isberg told SHRM that whether to suspend withholding of employees' payroll tax seems to be, in effect, "voluntary." He notes that though the language of Notice 2020-65 is directive, it includes no penalties for noncompliance. Even if employers want to take advantage of the four-month holiday and suspend collection of their employees' Social Security taxes, a big question is whether they could reasonably adjust their payroll systems to stop withholding these taxes. Most software systems do not have settings that allow for non-payment of these taxes. "Holiday" Taxes Must be Repaid in 2021 Employers that do not withhold eligible employees' share of Social Security payroll taxes during the four-month suspension period must repay the deferred taxes to the IRS during the first four months of 2021, unless legislation is enacted to forgive the uncollected taxes. Doing this will, of course, also affect employees. This is to be done by doubling the employee's Social Security withholding to 12.4 percent during the first four months of 2021. This crimp in take-home pay could make life even harder for the lowest paid workers. Even though, theoretically at least, the "holiday" extra cash and the repayment extra withholding should balance out, fewer dollars in a paycheck is harder to manage for employees at the lower end of the wage scale. Continued on page 9 Pete Isberg, VP at ADP, Inc.

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