Payroll Tax Holiday – What It Means To You and Your Company

In response to the Covid-19 emergency and because Congress has been
unable to pass new legislation to help the economy, Donald Trump issued
several executive orders on August 8. One of them was the Payroll Tax
Deferral Holiday. The so-called payroll tax holiday memorandum reduces
the amount of taxes withheld on employee paychecks from September 1
through the end of the year.

Among the taxes withheld on employee paychecks are Social Security
payroll withholding which is 6.2% and the Medicare tax is 1.45% for a
total of 7.65%. The company pays another 7.65% of the payroll in taxes
as well.

Under the Trump payroll tax holiday, the employee’s portion (7.65%) is
not to be withheld starting on September 1. The average salary in El
Paso, Texas is $14.83 per hour, or $593.20 per week, assuming a 40-hour
work week. Employees in El Paso should see an extra $45.38 per week in
their paychecks.

On Friday, the Treasury Department issued a guidance on how companies
are supposed to handle the payroll holiday.

For Employees

Under the guidance, the $45.38 is not forgiven. It is just deferred.

In other words, if the employee works 40 hours for the rest of the year,
they will see about $816.84 extra in their paychecks through the end of
the year.

But here is the important detail that employees need to be aware of.
They still owe the $816.84 to the IRS. It is not forgiven.

That amount will need to be paid by April 30, 2021.

How companies will collect the $800 is not addressed by the guidance.
However, the guidance makes companies responsible for the money.

For Company Owners

Under the IRS guidance, company owners can choose to withhold the tax on
their employee paychecks but it does not force them to.

Why is that important?

Under the IRS guidance, it is the company owner that is responsible for
the tax amount due next year.

To do so they can either double withhold the taxes on the payroll checks
starting on January 1 or decide to have their employees pay back the
$800 in one lump sum.

Some companies may choose to absorb the cost of the tax holiday but are
not required to do so.

It is also important to note that the company must still pay their share
of the taxes.

Company owners, knowing that they are responsible for the tax obligation
may choose to do nothing and continue to withhold the amounts on the
payroll checks leaving the employees without the tax holiday.

Employees have no say in what the company does.

The company owner remains liable for the taxes even if an employee
leaves before they collect the back taxes from them. The company has
little recourse under the IRS guidance to force an employee that quit to
pay back the taxes they owe.