After 5:00 pm EDT on Friday, August 28, 2020, the IRS and the Treasury Department released their initial guidance on the payroll tax holiday scheduled to begin on September 1, 2020. As with earlier COVID-19 granted relief, the delay in the withholding and payment of employee FICA only applies to “Affected Taxpayers,” which will be the employer, not the employee.
When are the taxes to be deposited?
The delay in withholding employee FICA delays the time for the deposit of these taxes by the employer. The guidance does not require the employer to cease withholding employee FICA from an employee’s wages. Therefore, if an employer continues to withhold employee FICA from an employee’s wages, the employer is still required to deposit those taxes at the same time as the other taxes withheld.
What are the applicable wages?
Only those employees receiving the equivalent of a biweekly payroll of less than $4,000 are eligible to have employee FICA deferred. The wage limitation applies on a pay period-by-pay period basis; therefore, an employee with annual wages over $104,000 could qualify for deferral in any bi-weekly pay period where his/her wages are below $4,000. The maximum deferral of employee FICA is under $248 per payroll period.
When are the deferred employee FICA taxes to be paid?
The employer must withhold from the employee and pay the total deferred employee FICA taxes pro-rata from the employee’s wages between January 1, 2021, and April 30, 2021. If the employer fails to withhold and pay the taxes during this period, interest, penalties will begin to accrue on May 1, 2021. The withholding from an employee’s wages in 2021 assumes 1) the employee will remain an employee during the period from January 1, 2021, to April 30, 2021, and 2) the employee’s paychecks will be large enough to absorb the additional withholding. If the employer is unable to recover the entire deferred balance through the ratable withholding, an employer can make arrangements to collect the deferred taxes from the employee.
Do I Have To Defer the Withholding? Can I Force My Employer to Do This (or Not Do This)?
The guidance does not explicitly answer these questions; however, since it does not require the employer to defer withholding, an employer could elect to continue withholding employee FICA for all of its employees. The employer could allow employees to make an election to defer or not defer the employee FICA taxes. Also, the guidance gives the employer full discretion to force all employees to defer, or decide, for instance, that only the shareholders will participate in any deferral. Since it is the employer’s responsibility to pay the deferred tax, it does not appear an employee would be able to force his/her employer to defer the employee’s FICA withholding. If an employer is concerned about repaying deferred amounts by employees who may leave their employer (perhaps specifically to avoid having the extra FICA withholding), it appears the employer could refuse to participate in the deferral program.
What About Forgiveness?
Congress will have to take action for any forgiveness of the deferred amount, in which currently there is no assurance Congress will take action for such a provision. A risk for employees who do not (or are not allowed to defer) is that if Congress does take action on a forgiveness provision, the employees would not have the ability to obtain a refund of these taxes if not deferred between 9/1/2020 through 12/31/2020.
