Updated guidance was recently released on the payroll tax deferral executive order. In summary, we do not recommend employers opting into this program.
Employers can elect to defer collecting eligible employees social security payroll taxes (6.2% of their gross pay) for payrolls run from Sep 1- Dec 31. This will result in a higher net check.
Employees eligible must be receiving less than $4,000 gross pay bi-weekly or the equivalent if they are on a different pay cycle.
These taxes are deferred meaning they will be due at a later date. That later date is they must be collected between January-April 2021. This will result in lower net pay for those employees in 2021 as employers will need to double up on social security payroll tax withholding for those employees whose taxes were deferred.
Why we do not recommend:
Employers will be responsible for any tax amounts deferred if an employee were to leave or the deferred taxes were not collected. For example, if an employee leaves in January 2021, the employer would need to pay those deferred taxes from end of 2020 on behalf of that employee between January-April 2021.
There is a chance the deferred taxes could be forgiven. Forgiveness is dependent on the election and as we understand it, congressional approval.
The net benefit is small and while employees will take home a larger net pay for the next few months, they will take home a smaller net pay in the first few months of 2021.
There is an administrative burden on the employer and payroll companies with this order. Payroll companies are still trying to update their systems to manage the deferrals.