PAYROLL TAX DEFERRAL – What is it, and what are the possible ramifications?
PAYROLL TAX DEFERRAL – EFFECTIVE SEPTEMBER 1, 2020 THRU DECEMBER 31, 2020
What is this new executive order that has come into play most recently regarding a payroll tax deferment and what does it mean for the taxpayer?
Payroll Tax Deferral is deferring the 6.2% of taxes that an employer withholds from his/her employee’s paycheck, which is then deposited into the social security fund. This will only apply to employees who are making less than $4,000 in a bi-weekly period.
This sounds great at the onset, because it puts more money in the wage earners’ pocket, but deferral does not mean exempt. It can have bad repercussions in the long run. Someone making $35,000 a year faces owing the IRS $751. Will that taxpayer be able to pay that back? If the taxpayer cannot pay the tax back when it is due, they will face penalties and interest which can accumulate very quickly.
Let’s look at the employer’s potential risk as well. Employers are responsible for withholding taxes from their employees’ paychecks and sending it to the government in the form of payroll tax. What if an employee decides to quit before the payroll tax gets repaid? Would the employee be responsible for paying it back or would the employer? Employers are responsible to withhold and pay payroll taxes between January 1 and April 30 or else face penalties and interest. This is a quandary that employers are facing not to mention the potential administrative nightmare.