Payroll Tax Deferral Q&A
Continuing from my earlier blog post (Presidential Order on Payroll Tax Deferral) about the payroll tax deferral that was mentioned in the Executive Order on August 8, 2020 we have some updated (although not yet fully written in law) Q&A guidance from the IRS as of September 3, 2020.
Some of the things we still had questions about have been answered in an IRS payroll industry telephone conference as follows:
Q: Is Postponement optional:
A: The IRS clearly stated that postponement was optional for the employer, yes. They also indicated they can permit employees to elect to opt in or opt out as well, if the employer elects to take the postponement.
Q: Is the Employer going to be held liable for the employee share of social security tax deferred regardless of collection of such tax from the employee?
A: The IRS clarified the “Affected Taxpayer” is the employer. They stated that if the employer is unable to withhold the postponed taxes from an employee during the January 1, 2021 and April 30, 2021 time frame, the employer remains liable for the employee’s tax still and must remit by April 30, 2021 to avoid penalties and interest.
Q: How will this get reported on the Form 941?
A: The IRS said this would get reported similarly to how employers currently report the deferral of the employer’s share of Social Security tax. It would go on line 13b with the postponed employee portion broken out on line 24 in Part 3 of the form. The IRS anticipates the final version of the Form 941 to be available late September in time to file in October.
Q: How will the repayment of the postponed taxes be made?
A: The IRS is working on guidance on this issue still. Rather than a tax deposit, it sounds like a notice may be received instead?
Q: Is an Employer required to “opt in” if an employee requests it?
A: The IRS emphasized the postponement is optional and an employer is able to consider employee input, but the employer remains the “Affected Taxpayer” and is not required to use the relief even upon an employee’s request.
Q: If an employee already has YTD wages of $104,000 (the limit defined eligible for the deferral), do they still qualify?
A: The IRS reiterated that they applicable wages are determined on a pay period basis and the YTD wages would not be considered, so possibly yes.
Q: If an employer elects NOT to opt in on the postponement, and Congress later passes legislation that makes this forgiven what happens?
A: The IRS said it could not comment on the future impact of future legislation. No idea if this is then refunded to employees or not yet.
Q: What about a one-off bonus? Does that qualify?
A: The IRS stated supplemental wages were not addressed in the Notice, but some questions that may be guiding are whether the bonus has a separate pay period and what the equivalent pay amount is. (They don’t make this real clear at all? Maybe it means if it is a separate pay period and was under the $4,000 or equivalent for that pay period it does still qualify?)
Q: Can you postpone payment if you did not postpone the withholding of such tax?
A: The IRS explained the relief was for the withholding and payment of taxes. They then went on to say that it would seem if relief is not taken for the withholding of the taxes, then it would not be available for the payment of them.
Q: How do we report liability on the Form 941 if the postponement is taken?
A: The liability arises when wages are paid. Therefore reporting on the Form 941 should include all wages paid and total liability even if not yet due.
Q: Will we report this in 2021 anywhere on Form 941?
A: No. Currently the IRS says there would be no reporting of this on any 2021 941 or other return.
Q: How will the postponement be reported on W2’s if taken?
A: The IRS is currently working on guidance for this.
Q: If an employer has to pay in the postponed taxes for an employee they were not able to withhold it from, how does that get reported?
A: The IRS noted that if this were to happen, regular employment tax law would kick in. Meaning a gross-up of those amounts should happen and would qualify as wages.
Q: When can we expect further guidance?
A: The IRS is looking into ways to get the information out as quickly as possible. You may be able to call the Notice 2020-65 Hotline at (202) 317-5436 for more information and possibly some FAQ’s.