On August 8, 2020, President Trump signed the Memorandum on Deferring Payroll Tax Obligations to provide the American workforce with additional relief during COVID-19. The memorandum allows companies to defer specific payroll taxes from September 1, 2020, to December 31, 2020, if an employee makes less than $4,000 bi-weekly.
While the details of the memorandum have not been finalized, President Trump has directed the Secretary of the Treasury to provide further guidance to employers and the American workforce. The Memorandum on Deferring Payroll Tax Obligations only addresses the 6.2 percent Social Security tax on employees and only applies to employees making less than $104,000 annually. Even though employee net pay will increase slightly during the next few months, the memorandum will only delay the taxes. Section four of the Memorandum on Deferring Payroll Tax Obligations states that the Secretary of the Treasury is also in charge of examining options to waive the obligation to pay the taxes deferred. When the taxes are due after the deferral period, the memorandum states that the taxes will not include any penalties or interest due to the deferral period.
Many questions have arisen regarding the deferral of payroll taxes. Is the tax deferral optional? Who decides if the taxes will be deferred, the employer or the employee? What if someone has two jobs or makes commission and bonuses on top of their salary? How and when will the deferred taxes be paid?
Symmetry Software has been working on a design to accommodate the Memorandum on Deferring Payroll Tax Obligations. We have been in touch with numerous sources regarding our implementation, and we will continue to monitor for guidance from the Internal Revenue Service and the Federal Government. The Symmetry Tax Engine (STE) will provide the deferral amount based upon the current gross wage and the year-to-date wages that you send to the STE as federal wages. The deferral calculation will be exactly like the employee social security tax but with a wage base of $104,000, a tax rate of 6.2%, and a limit of $6,448.
The year of 2020 has been undeniably turbulent, and as we continue to navigate through COVID-19, more changes in payroll taxes could ensue. Join the payroll community on PayrollTalk to discuss the current and upcoming changes!