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Today, September 1 is the first day of the payroll tax deferral program per executive order by President Trump. Two weeks ago, I wrote an article 2020 Employee Payroll Tax Deferral – 7 Things to Know and now we have some additional guidance from the IRS for which we can provide some guidance. Read my first article before going further here.

Payback Period

With four months of payroll tax deferral, there will be a double payroll tax period from January 1, 2021 to April 30, 2021. This isn’t as bad as having to pay it back all at once, but employees need to realize that while their paychecks will include 6.2% more money that is normally taxed from September 1, 2020 to December 31, 2020, they will have an additional 6.2% taxed during the payback period.

As most individuals are not great savers and we are going into holiday season, this liability is a strike against people when the big holiday credit card payments come due.

Employer Liability

The IRS has outlined that the employer will be responsible for the payback of deferred payroll taxes. If the deferred taxes for individuals aren’t a turn off, this definitely is for employers. Add to that the burden of:

  • Reducing employee payroll taxes for the rest of 2020
  • Doubling payroll taxes for the payback period in 2021
  • Restoring payroll taxes to the normal level on May 1, 2021

We hope that payroll providers will make this easier, but to date they are still struggling to implement this program.

Employee Departures

A big unanswered question is what will happen if employees take the payroll deferral then leave before those taxes are paid back. With employers responsible, this is a big red flag.

Our Recommendation

As in my previous article, we again recommend that employers do not participate in this optional program due to the risk to employees and employers alike. This tax deferral program is just lots of pain for something you will have to pay in a few months anyway.