Human resources expert comments on President Trump’s newly implemented tax break
Starting today (Sept. 1), employers now have the option to stop withholding payroll taxes for their staff. The Treasury Department announced the option last week, detailing the new guidelines in a statement that offers a temporary deferral of the payroll taxes which employees pay into Social Security.
“Employers can opt to stop withholding payroll tax, provided an employee makes less than $4,000 on a biweekly pay period,” says Rob Wilson, President of Employco USA and human resources expert. “But this is only a deferral. Workers will need to repay the taxes by April 2021.”
Generally, employees and employers each pay 6.2% tax into Social Security, for a total amount of 12.4% per employee. However, under Pres. Trump’s new deferral, employers will have the option of not collecting the employee’s share. As a result, workers could see a bump in their paycheck – but next year, they will have to pay that money back or face financial penalties.
Wilson, who is the president of a national employment solutions firm, says that this will spell a major human resources headache for employers.
“Many people resisted President Trump’s deferral plan for payroll taxes,” says Wilson. “The President envisions the economy will receive a boost from employees having extra funds in their paycheck each pay period, but from an HR standpoint, it’s going to be very confusing for employers and add lots of extra steps when it comes to payroll.”
Wilson says that employers don’t have to take advantage of this payroll deferral option, but if they do, they will be in charge of collecting penalties from their employees if they don’t repay the amount.
“And then you have to consider what happens when the employee no longer works for you. According to the regulations, it will still be the employer’s responsibility to try and collect the funds from the former employee. Tracking down ex-employees isn’t always easy, especially if they are moved or not committed to paying back the tax amount.”
In addition to these concerns, employment expert Rob Wilson says the notice leaves unanswered questions that may or may not be covered in future guidance from the IRS such as:
- Should the employer allow employees to choose between deferral and no deferral or should it be automatic (most discussion to date has suggested that employees should not be burdened with a future payment unless they specifically agree to that burden)?
- If an employee terminates employment owing back Social Security taxes, can an employer do catch-up withholding from their final paycheck?
- Can an employer require an employee to sign a promissory note for the deferred tax amount?
- If an employer is unable to collect the tax from an employee and pays the tax for them, is the payment of the tax additional wages? It would seem to be, and as additional wages, additional Social Security and income tax withholding would apply, all of which would be employer costs.
- How does an employer prioritize collecting repayments? Does the employer remit an employee’s health care, other welfare benefit premiums, and 401(k) contributions first and then collect the deferred Social Security tax? Or, will the employer have an obligation to collect the deferred tax first?
“It can quickly become very complicated. We don’t know when or if the IRS is going to provide more guidance around this tax deferral, so right now, it’s completely unchartered territory and has the potential for disaster,” says Wilson. “That being said, employers need to be sure they’re really informed about what this deferral program will mean for them before they take on that responsibility.”
For more on this topic, please contact Rob Wilson at rwilson@thewilsoncompanies.com.