What You Need to Know About the Payroll Tax Deferral
The IRS released guidance on the payroll tax deferral from the Presidential Memorandum issued on August 8, 2020, which allows employers to defer withholding and payment of the employee’s portion of the Social Security tax if the employee’s wages are below a certain amount.
Under the guidance, the Social Security tax deferral may only apply to employees with pretax wages or compensation that are less than $4,000 during a bi-weekly pay period for wages paid from September 1, 2020, through December 31, 2020, with each pay period considered separately.
Employers can defer the employee portion of the old-age, survivors, and disability insurance (OASDI) tax under Sec. 3101(a) and Railroad Retirement Act Tier 1 tax under Sec. 3201. The due date for withholding and payment of these taxes is postponed until Jan. 1, 2021 and ends April 30, 2021. Interest, penalties, and additions to tax will begin to accrue on unpaid taxes starting May 1, 2021.
As of now, there are still many unknowns, such as what should employers do when employees quit before the end of the year or how this applies to self-employed individuals.
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