All of us here at Southwestern Payroll have been anxiously waiting for the much need guidance on President Trump’s executive order concerning the social security tax deferral. As you likely know by now, the IRS posted guidance
on the subject late Friday. Sadly, this guidance leaves many unanswered questions.
Since the order was signed, the developers of our payroll and tax platforms have been working on updates to our software to implement the deferral. This was in advance of the guidance which has greatly complicated what would be needed. Based on the current guidance available, participation for employers, as the affected taxpayer, is allowed but the guidance does not indicate it is required.
Further, the recording on the IRS Notice 2020-65 hotline clearly states that this is optional. Additionally, Secretary Mnuchin stated in an interview that this is a voluntary program for employers. One major outstanding issue is if the deferral is not later forgiven, employers could be on the hook for this amount, even if it was not collected from employees if the employee leaves the employer. There would be no payroll on that employee to collect the deferred amounts at a later date.
The IRS guidance also makes it clear that the burden to collect and remit the deferred taxes at a later date lies with the employer. This cannot be much of a surprise without a change to existing law, requiring it. As such, we anticipate many or most employers will choose not to participate.
Of course, we realize that there will be some that do, and developers have been testing different methods to accomplish the task with the existing functionality. The procedures being developed will be provided soon, including the items that could cause problems if not accounted for properly.
The alternative would be complicated enhancements to the software with what could be a lengthy development time. In the meantime, we anticipate further guidance which may change things drastically. As many have written before me, “To make an informed decision, it would be prudent for employers not to implement this deferral option until the IRS has answered these important questions in forthcoming guidance.”
We will continue to monitor developments and work with our professional organizations to interpret future announcements. We will issue instructions once we have the information needed.
Southwestern Payroll Service, Inc.