National Payroll Associations Weigh In Regarding Payroll Tax Deferral

National Payroll Associations Weigh In Regarding Payroll Tax Deferral

In a joint letter to the U.S. Treasury and IRS, the National Payroll Reporting Consortium (NPRC) and American Payroll Association (APA) offered help to both government agencies by listing some priorities the NPRC and APA believe should be considered regarding guidance for President Trump’s recent memorandum deferring employee payroll taxes.

Payroll tax deferral. On August 8, 2020, President Trump issued a memorandum that will defer the employee’s portion of Social Security tax from September 1, 2020 through December 31, 2020 and includes the following two conditions: (1) the deferral is available with respect to any employee, the amount of whose wages or compensation, as applicable, payable during any biweekly pay period generally is less than $4,000, calculated on a pretax basis, or the equivalent amount with respect to other pay periods; and (2) amounts will be deferred without any penalties, interest, additional amount, or addition to the tax.

The memorandum is intended as a form of economic stimulus in response to the COVID-19 pandemic and was issued after talks of another COVID-19 stimulus bill broke down in early-August 2020 between the House, Senate and White House.

Guidance and concerns. The memorandum notes that the U.S. Treasury will issue guidance regarding the payroll tax deferral. However, no guidance has been issued at this point and some in the payroll community have both concerns and questions. Perhaps most importantly, will the employee have to repay the payroll tax deferral at a later date?

Already the American Institute of Certified Public Accountants (AICPA) has requested guidance, clarification and recommendations to the Treasury regarding the payroll tax deferral and the U.S. Chamber of Commerce sent a coalition letter to House Speaker Pelosi, Senate Majority Leader McConnell, and Treasury Secretary Mnuchin saying that many Commerce members will not defer the payroll taxes.

NPRC and APA’s letter. The NPRC and APA’s August 14, 2020 letter begins with what they believe is the most critical question: Whether employees should be required to opt in or opt out of the deferral, and in what form? If this is a requirement, both associations say the notices and elections to opt in or out should be electronic.

The letter continues by stressing clarification that employers will not be held liable for their share of the deferred Social Security taxes and adds that any deferred amounts should be paid with the employee’s 2020 income tax returns (Forms 1040).

The associations also believe in minimizing related reporting requirements by not adding any new boxes to Form 941 (Employer’s Quarterly Federal Tax Return) or Form W-2 (Wage and Tax Statement) and suggest that the deferred employee Social Security tax could be a coded entry in Box 12 of Form W-2.

Other suggestions from the NPRC and APA include: clarifying that employers should apply on a per-pay period amount (e.g., $4,000 biweekly) to determine eligibility; not requiring employers to calculate average wages over a time period to determine application of the deferral; no phase-out formula for employees near the $4,000 biweekly level; and no adjustment for prior payrolls if an employer implements the deferral after September.

NPRC’s statement to the IRS. On August 20, 2020, the NPRC issued a statement to the IRS regarding the payroll tax deferral that expresses concern that sufficient time is not available to implement the deferral by September 1, 2020. The statement says it is too complex to implement such a change so quickly and offers the IRS some questions and recommendations.

In the statement, the NPRC echoes some things from its joint letter with the APA, such as having employees paying the deferred amounts on Form 1040 (unless legislation forgives the deferral) and whether to be able to opt in or out of the deferral.

Content provided by Thomson Reuters – August 25, 2020. This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.

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