HomeMy WebLinkAboutCouncil Presentation 09/01/2020-Payroll Tax DeferralPayroll Tax Deferral
September 1, 2020
BACKGROUND
•Presidential Memorandum on Deferring Payroll
Tax Obligations in Light of the Ongoing COVID-19
Disaster –issued on August 8, 2020
•Directed Secretary of the Treasury (IRS) to defer
certain payroll tax obligations from September 1,
2020 to December 31, 2020
•Applicable wages = 6.2% of Employee Social Security
contribution
•Only employees making less than $4,000 (pre-tax) on a
bi-weekly basis are eligible for the deferral
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BACKGROUND
•Presidential Memorandum further directs
Secretary of Treasury to:
•Issue guidance to implement the
memorandum
•Explore avenues to eliminate the obligation to
pay the taxes deferred
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GUIDANCE FROM TREASURY
IRS issued guidance on August 28, 2020:
•Pay back period starting January 1, 2021 and no
later than April 1, 2020; interest & penalties
accrue beginning May 1, 2020
•Employer to “withhold and pay” any deferred
amounts during the pay back period
•Ultimately, an employer liability to pay back any
taxes deferred
•If necessary, employer may make arrangements to
collect the deferred taxes from employee 4
GUIDANCE FROM TREASURY
•Designates “employers that are required to
withhold and pay the employee share of social
security tax” as the “Affected Taxpayers”
•Clarifies that the $4,000 per pay period threshold
for tax deferral eligibility must be determined on a
pay period-by-pay period basis
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GUIDANCE FROM TREASURY
Treasury guidance did not address the following:
•Whether payroll tax deferral is mandatory or
optional
•Appears to be optional for employer
•Relies on Section 7508A of the IRS Code which allows
IRS to postpone deadlines -does not allow IRS to
prohibit timely withholding and payment of taxes
•Employees are not designated as “Affected Taxpayers”
–appear to have no independent right to deferral
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GUIDANCE FROM TREASURY
Treasury guidance did not address the following
(cont.):
•Whether employees m ay opt-out
•Appears to be no prohibition on an employer allowing
employees to choose whether or not to defer the
employee portion
•Participation & payback for temporary employees
•How to collect amounts deferred if the employee
separates from the Town
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POTENTIAL CONSIDERATIONS
For Employees:
•Benefit for 4 months through December 2020
•Burden for 4 months from January-April 2021 to
pay back deferred tax (essentially double payroll
taxes) unless Congress passes legislation to forgive
deferred amounts
•Potential tax implications for 2020 & 2021
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POTENTIAL CONSIDERATIONS
For Employer:
•Administrative burden to implement & maintain
•Manual calculation each pay period to determine
eligibility of each employee
•Collections from employees upon separation and
during payback period
•Temporary employees might not be able to
participate
•Payback is ultimately Town’s responsibility
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ESTIMATED IMPACT
•Eligible employees –up to 373 of 397 (excluding
impact of overtime to wages)
•Impact to individual employees:
•$5 –$248 per paycheck
•$40 -$1,984 from September –December in
total
•Total liability to Town estimated at $371,000
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NEXT STEPS
Request for Council to provide direction on the
following:
•Town implementation of payroll tax deferral
considering the impact to the Town and
employees
•If Council votes for Town to participate
•Allow individual employees to opt-out?
•Obtain written, signed agreement from participating
employees for potential collection of taxes owed at
separation
•Inclusion or exclusion of temporary employees 11
TIMELINE
If Council votes to implement the payroll tax deferral
program and allows individual employees to opt in or
out:
•Survey employees to determine participation
•Implement written, signed agreements with
participating employees
•Implement for pay period ending 9/11/20
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DISCUSSION
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