Payroll Tax Cut

Technical topics regarding tax preparation.
#1
EADave  
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Man, just when I thought I might have a handle on the tax law changes in Cares, here we go again with a payroll tax cut. Unanswered questions are:
1. Does the cut/deferral include the ER’s portion (Match) as well as the EE’s portion?
2. Deferral, who foots the bill on the deferral or will Treasury eventually forgive the taxes?
3. Will the forgiveness be characterized as income to the employee or the employer?
4. Should the ER forgo the cut and continue to collect FICA from the EE to avoid repayment of the deferred taxes down the road?
5. If Trump can EO this into existence, can he simply EO Schumer and Pelosi out of office?

That last one was for funnies, of course.
 

#2
dave829  
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1. No. It references sections 3101(a) and 3201(a), which are the employee portion of OASDI (6.2%) only. The employer portion is in section 3111.
2. It’s a deferral, not a payroll tax cut. The executive order says that Treasury will explore avenues to pay for the taxes deferred, such as legislation for forgiveness.
3. Right now, there’s no forgiveness.
4. Don’t know.

https://www.whitehouse.gov/presidential ... -disaster/
 

#3
CathysTaxes  
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I believe s president can EO tax cuts. Didn't Obama did it when he reduced the EE portion of social security to 4.2%?

And don't get my hopes up!
Last edited by CathysTaxes on 9-Aug-2020 10:35am, edited 1 time in total.
Cathy
CathysTaxes
 

#4
EADave  
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Bam! Dave responding right out of the gate, nicely done! 2 Daves don’t make a right, er, well, never mind.
 

#5
dave829  
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CathysTaxes wrote:I believe s president can EO tax cuts. Didn't Obama did it when he reduced the EE portion of social security to 4.2%?

No. There were two laws during the Obama presidency that cut the payroll tax. The HIRE Act (P.L. 111-147) added 3111(d) to the Code which forgave the employer’s 6.2% OASDI for workers hired during most of 2010, and the 2010 Relief Act (P.L. 111-312) reduced the employee share of OASDI from 6.2% to 4.2% for 2011 as well as similar relief for the SE tax.

And if you’re wondering if Trump has the authority to defer the payment of payroll tax, interest and penalties, the answer is “yes.” Under the EO, Trump used his authority under section 7508A, which gives the Treasury the authority to delay the filing, payment and collection of tax, interest and penalties for up to 1 year when affected by a federally declared disaster. And the COVID-19 pandemic is a federally declared disaster.
 

#6
WBR  
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EADave wrote:4. Should the ER forgo the cut and continue to collect FICA from the EE to avoid repayment of the deferred taxes down the road?


Number 4 is the main question. What happens if an employee leaves before year end and you have not been withholding FICA taxes from their pay and there is no forgiveness. Will the employer be on the hook or will the employee be on the hook when they file there 2020 federal return?
 

#7
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I saw something about Trump making the cut permanent in January if he’s re-elected. I guess he’s buying votes
 

#8
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Agreed with dave829's responses.

As of right now, we should probably contact our clients making them aware of this but as of now we all should do nothing except keep our ears open. The earliest effective date would be 9/1 so we have three weeks to figure this out. There is no way to put this into effect without being a complete cluster from a software perspective.

Quite interesting to me, there appears to be no change for self-employed taxpayers.

CathysTaxes wrote:I believe s president can EO tax cuts.


No. If it was possible for an EO to cut taxes, then this EO would actually do that.

The reduced payroll taxes during the Obama Presidency were in an overall tax bill passed by both houses of Congress and signed by the President. The stated reason for it was to replace the Making Work Pay Credit, which if you remember was the refund of up to $400 in social security taxes.
 

#9
WBR  
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missingdonut wrote:The earliest effective date would be 9/1 so we have three weeks to figure this out.


Missingdonut - Thanks did not know the start date was Sept. 1st
 

#10
FLAcct  
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The President said he was going to try to make this effective back to August 1. What a mess. I am so tired of all of the unknown tax issues this year.
 

#11
Bob A  
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I'm telling clients it's not a payroll tax cut so don't count on it being a good deal or any deal. Will it be mandatory? (for all under $4k bi-weekly) opt in / opt out? According to Kudlow it should amount to about $1,200 so there you have it.....
 

#12
Nilodop  
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Even in these days of low interest rates, I have continued to avail myself of all opportunities to defer tax payments, absent some overwhelming reason not to. This article in today's local paper argues the deferral of payroll taxes isn't that great an idea. I disagree.

Also the article does not mention that in many (most?) cases, taxpayer would also be deferring a tax deduction. I also highlighted a couple of other points in the article.

A CARES tax deferral that may not be your best move

By Gene Marks FOR THE INQUIRER


Businesses, such as this store in Niles, Ill., have been given several options for government aid. But the option to defer payroll taxes until the end of 2022 does not leave all accountants enthused.

NAM Y. HUH, / AP

Do you want a free government loan for your business? There’s one available.

Thanks to the sweeping antivirus CARES Act, the federal government is allowing all companies, regardless of whether they have been affected by the coronavirus, to defer paying employer payroll taxes until as late as the end of 2022, with no interest due.


It’s a pandemic-era financial break for business that hasn’t stirred up much interest. And some accountants think maybe that’s for the best.

The payroll tax deferral under the CARES measure primarily affects only the company’s portion of the federal Social Security (or FICA) tax, an amount calculated at 6.2 percent of an employee’s earnings up to $137,700. Both employers and workers pay that rate.

Although employers are allowed to hold back on paying their portion, it is still due. It’s just that the due date has been extended. Half would be required to be paid by Dec. 31, 2021, with the remaining due at the end of 2022.

The tax deferral program is open to pretty much any employer, including the ones who borrowed money under the Paycheck Protection Program. Companies can also take advantage of the payroll tax credit (I would not call it a credit)even if they applied, or plan to apply, for other CARES Act tax credits, such as the aid given employers who must pay workers who take COVID-related leave.

The payroll tax deferral program also applies to independent contractors and self-employed small-business owners.

There’s no application or approval process. Businesses that want to take advantage of the program simply reflect that choice on their quarterly federal 941 payroll tax returns.

Tim Joseph, a financial adviser at the Cordasco Financial Network in Philadelphia, says the offer may be particularly useful for employers who borrow to make the tax payments.

In effect, the payroll tax deferral is an interest-free government loan. And in these times of extreme economic uncertainty, it would seem to be a good idea to save that cash if only as a reserve, in case there are difficult times ahead. But many small businesses don’t seem to be taking advantage of the program. Why?

“It’s because the payroll tax deferral is a short-term loan rather than a forgivable loan, such as the Paycheck Protection program or a grant,” said John McGovern, president of McGovern & Associates PC, a Manayunk-based accounting firm. “Furthermore, since the repayment is due by the end of 2022, this can stress the cash flow of 2021 and 2022,” especially if the pandemic keeps on dragging down the economy.

Bob Miller, who runs Ironside IT Partners, a small technology firm in Blackwood, agreed. “We aren’t taking advantage of the tax deferment because of the concerns of still having to pay it back,” he said. (I don't get it. Same is true of all tax deferrals.)

Although Miller said his firm “jumped on the PPP,” he said it found the tax deferral less appealing. In sum, he said the deferral would merely shift his company’s burden from “a manageable known present to an accumulated unknown future.”

Joseph thinks that the overall incentive may also not be worth the trouble for smaller firms with few employees. “Given that the tax deferral is limited to only the employer’s matching Social Security amount, it may not amount to very much tax deferral,” he says.

Two weeks ago, President Donald Trump issued an executive order that allows individuals, just like their employers, to also defer their Social Security taxes. But, like the tax deferrals included in the CARES Act, the move has been met with little enthusiasm, and for similar reasons. Unless a worker takes the president up on the offer, employers are still bound to withhold the employee’s portion.

Small businesses needing funds, McGovern says, are likely better off applying for an Economic Injury Disaster Loan from the Small Business Administration, which are at a fixed interest rate of 3.75% and paid back over 30 years.

Still, said McGovern, “A better option for businesses would have been a payroll tax holiday, or a repayment term of longer than two years or the repayment commencement after the pandemic is declared ended by the federal government.”

Marks is a certified public accountant and the owner of the Marks Group, a technology and financial management consulting firm in Bala Cynwyd. genemarks
 

#13
Dennis2  
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Taking money out of FEMA at the beginning of hurricane season would not seem to be a vote getter...
 

#14
Bob A  
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I contacted my Payroll Software Provider this morning and they're awaiting instructions from IRS as to how this should work. They indicate it will be an "option" (for each employee) using a specific pay type but they have no solid info yet. They stated many of their clients are not liking this one bit, fear the employer will be on the hook (fyi)
 

#15
FLAcct  
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Isn't the employee payroll tax deferral as originally posted by EADave entirely different than the employer payroll tax deferral mentioned in Nilodop's recent post?
 

#16
IDCPA  
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FLAcct wrote:Isn't the employee payroll tax deferral as originally posted by EADave entirely different than the employer payroll tax deferral mentioned in Nilodop's recent post?



Yes.
 

#17
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We just got Notice 2020-65 late yesterday afternoon to give us guidance on the employee social security tax deferral: https://www.irs.gov/pub/irs-drop/n-20-65.pdf

The notice explicitly states that the $4,000/biweekly income test is done on a paycheck-by-paycheck test. If in one biweekly period the employee makes $4,001 then there's no deferral on that paycheck, but if in the next they make $3,999 then full deferral is allowed on that paycheck.

Amounts deferred are required to be withheld by the employer ratably from 1/1/21 through 4/30/21. Amounts not withheld by 5/1 subject the employer to interest, penalties, additions to tax (for failure to withhold). If necessary, the employer may make "other arrangements" to otherwise collect the remaining social security taxes from the employee but the nature of that is not defined further. I assume that breaking kneecaps is not allowed.

Taxes must still be remitted as they are collected under normal due dates, so an employer who chooses not to defer collecting cannot defer sending them to the IRS.

The software issues with implementing this, the fact that the employer is liable for collecting all deferred taxes, and the fact that employers will have to explain in January why employee checks will essentially double the social security withholding means this is probably going to be a non-starter to my employer clients.
 

#18
FLAcct  
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I don't even know how to explain this to my business clients. Let's see... Do not withhold the employee share of Social Security from your employees' paychecks from Sep 1 to Dec 31. Then everyone must vote for Trump because he says that if he is re-elected he will get the deferred taxes forgiven (not likely). If not forgiven the employees or maybe even the employer will have to pay back the deferred tax in the beginning of 2021. How stupid is this??? I'm not even going to mention this to my small business clients.
Last edited by FLAcct on 29-Aug-2020 11:44am, edited 1 time in total.
 

#19
sjrcpa  
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FLAcct wrote:If not forgiven the employees or maybe even the employer will have to pack back the deferred tax in the beginning of 2021.
The employer has to pay it whether or not they can collect from the employees.
Yes it is stupid.
 

#20
JAD  
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Per WSJ, today, The National Finance Center at the Dept of Agriculture processes payroll for more than 600,000 federal workers at various agencies, and it is going to implement this tax deferral program. This will put pressure on lawmakers to forgive the taxes.

What I want to know for my clients is this: if they continue to pay taxes now, and there is forgiveness later, will their employees receive a benefit?
 

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