As you may have seen recently in the news, President Trump signed an executive order that provides a Payroll Tax Holiday (PTH) for American workers. From September 1 to December 31, 2020, the IRS will allow companies to stop withholding FICA of 6.2% of the pay for employees that make under $104,000 per year. As of now, this is only a deferral of the tax and not full forgiveness. This means that employees, or employers, may have an obligation to pay back this money in 2021. Neither the Presidential Memo nor the subsequent Treasury Notice changes the underlying law, which makes employers liable for employment taxes whether or not they withhold such taxes from employees. The Treasury Notice confirmed that employers remain liable to collect from employees and pay taxes deferred under the Presidential Memorandum. What This Means for Employers Offering the Payroll Tax Holiday (PTH) to employees is currently optional for private employers; federal employers have already said they will participate. Some things to note as you evaluate your decision:
If a company chooses to offer the deferral, employees may choose whether or not they will participate. If an employee participates, they can expect higher net take-home pay for the remainder of 2020 and a lower net take-home pay from January - April 2021.
While the guidance is a bit unclear, it seems that if an employer cannot collect the money from employee(s) in 2021, the employer will still be obligated to pay the money to the IRS. In other words, employers may be required to fund the employee's 6.2% tax that was previously deferred. This situation may arise if an employee works for the company in 2020 but is terminated or voluntarily quits before, or during, the payback period (Jan - Apr 2021.) It is also possible that employees will be required to pay the money back when filing their personal 1040 Tax Return.
Employees earning less than $4,000 per biweekly pay period ($104,000 annually) are eligible to defer the 6.2% payroll tax. Higher earners are not eligible to participate.
It is expected that more guidance will be released in the coming weeks, which may impact your decision.