In light of the President’s Executive Orders on payroll tax, all eyes are on the Treasury as they draft guidance on the measure. In the meantime, multiple national businesses and business organizations have made clear the provisions will do more harm than good. Our Government Affairs Manager sat down with Steve Trenholm of Gallager Flynn and Company to discuss the implication for the President’s Executive Memoranda on payroll tax deferments and what employers should be doing to prepare for liabilities that arise from offering such a deferment or not offering it.
Watch what Steve had to say below:
Guidance around the deferral of employee OASDI withholding was completed and published on Friday, August 28th and the option is set to begin on September 1st, 2020. Below is a high-level overview of what we know since we sat down with Steve to discuss the executive memorandum.
- This deferral is only for the employee portion of the OASDI Tax (6.2%).
- As this is not a forgiveness, rather a “holiday,” the repayment is postponed until the period beginning on 1/1/2021 and ending on 4/30/21. This repayment will be done by the employer withholding appropriate amounts from the employee during that time frame and depositing them with their payroll tax deposits for that period. Penalties and interest will accrue on any unpaid deferred taxes beginning 5/1/2021.
- The employer is responsible for this repayment and the only mechanism in the guidance is that if necessary, the employer may make arrangements to otherwise collect the deferred taxes from the employee if the deferred tax has not been fully repaid through payroll deduction by 4/30/2021. This leaves the responsibility on the employer if the employee leave employment or otherwise does cannot have enough withheld to satisfy the deferred tax by 4/30/2021.
- This is still optional at the discretion of the employer whether to defer or not since there is no requirement that the employer defer. Also, the employer can chose different classes of employees to defer for, and it appears that the employer has full discretion to force all employees to defer.
- For deferral eligibility, the guidance defines applicable wages as follows:
- Applicable Wages means wages as defined in section 3121(a) or compensation as defined in section 3231(e) paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020, but only if the amount of such wages or compensation paid for a bi-weekly pay period is less than the threshold amount of $4,000, or the equivalent threshold amount with respect to other pay periods.
- So, applicable wages are wages net of exclusions from FICA/Medicare wages such as health care under a cafeteria plan. Also, the guidance provides that the limitation applies on a pay period-by-pay period basis, thus it is possible an employee with wages over $104,000 for the year could qualify for deferral in any bi-weekly pay period where his/her wages are below $4,000.
About Steve Trenholm:
Stephen P. Trenholm, CPA, MST
Steve is a Director in the Tax department at Gallagher, Flynn & Co., LLP. He provides general accounting and tax services to a diversified client base, including individuals, corporations, partnerships and limited liability companies. Steve works with clients in a number of industries including manufacturing, real estate, construction and professional services. Additionally, he provides tax consulting in areas of complex tax issues including mergers, business formations, tax credit studies.
Prior to joining the firm in 2012, Steve was the tax manager at Bauer Hockey, Inc. in Exeter, New Hampshire. Previous to Bauer, Steve spent three years as tax manager with Ernst & Young’s Boston, MA office. Previous to Ernst & Young, Steve spent several years in public accounting in accounting firms in the Greater Boston, MA area. Steve is a cum laude graduate of Salem State University where he earned his Bachelor’s Degree in Accounting, and Bentley University, where he earned his Master’s Degree in Taxation.
In addition to Gallagher, Flynn & Co., LLP, Steve is a member of the American Institute of Certified Public Accountants and the Vermont Society of Certified Public Accountants.
This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. This interview took place on Wednesday, August 19 based on the information that was available at that time. This information may be subject to change in the future.