Employers taking a pass on ‘payroll tax holiday’

I still don’t know whether I will have a payroll tax holiday before the end of the year. Do you? Employers, it turns out, have the option of whether to opt in of the program authorizing them to defer collecting Social Security tax on wages earned by qualifying workers between Sept. 1 and the end of this year.

It appears that most are planning to continue to collect and remit those taxes on behalf of their employees.

“The biggest issue is who is on the hook,” said Matthew B. Hickey, chairman of Crowe & Dunlevy’s taxation practice group.

The Social Security tax deferral program was created by President Donald Trump in August through an executive order he issued directing the Treasury Department to develop a program to defer the collection of certain payroll taxes from workers who make $4,000 or less in a biweekly pay period.

The same executive order, which specifically involves Social Security tax withholdings contributed to the U.S. government (6.2% of an individual’s gross pay), also directed the agency to explore whether there might be a way to eliminate the tax on a permanent basis.

Hickey said subsequent guidance indicated employers could choose whether to defer the collection of the tax.

A concern, he said, is that the guidance also informed employers that any employee with deferred tax collections would be required to repay those to the federal government on wages earned during the first four months of 2021.

That would boost the Social Security tax on your or my gross wages to 12.4%, taking a much bigger bite out of what we would earn during that period.

“If you choose not to participate now, your employees might grumble a little bit,” Hickey said, “but I am confident they will grumble if you double dip on them during the first four months of 2021.”

A much more compelling reason for businesses to take a pass on the deferral, he continued, is that the Internal Revenue Service has told employers they will be required to repay those deferred taxes in 2021 in cases where an affected employee no longer works for a company.

“There could be a variety of reasons there are no wages to withhold from in 2021, such as when an employee leaves a business or a business goes under,” Hickey said.

“If you (as an employer) participate in the program, you are obligated to repay those dollars back into the system.”

That, he said, is a headache most business leaders would prefer to avoid.

“I haven’t talked to any of our clients who will take advantage of that,” he said.

L.J. Suzuki, an adviser at CFOshare, an outsourced finance department for small businesses, said that’s what he has been hearing as well.

CFOshare provides business owners with services that help them with forecasting, growth strategy, pricing, distress and turnarounds, mergers and acquisitions.

“Every entrepreneur I’ve spoken with sees no advantage in offering the payroll tax holiday to their employees,” Suzuki said.

“At best, the employees would be confused and have lots of questions.

“At worst, it will be an administrative nightmare and result in higher tax payments for the business.”

Trump’s executive order authorizing the deferral comes in the midst of an environment in which business owners across the country are still contending with unfavorable economic conditions caused both by government-required lockdowns from earlier in the year andthe resulting observed drops in demand from consumers for goods and services.

While the economy still faces significant challenges, consumer demand has rebounded somewhat recently.

Hickey said this week that most of Crowe & Dunlevy’s business clients remain cautiously optimistic about the future.

“They seem to be doing OK for now, forging ahead and taking advantage of opportunities where they see them,” he said.

“Every entrepreneur I’ve spoken with sees no advantage in offering the payroll tax holiday to their employees.”

L.J. Suzuki, CFOshare