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Guidance on Payroll Tax Deferral
On August 28, 2020, the IRS issued IRS Notice 2020-65, which provides guidance for implementing the Presidential Memorandum dated August 8, 2020, whereby the President directed the Secretary of the Treasury to defer withholding and payment of the employee portion of certain payroll tax obligations.
The Notice allows employers to defer withholding on certain employee compensation during the last four months of 2020 and then withhold those deferred amounts from the employees’ paychecks during the first four months of 2021. An employer can only defer such payroll tax obligations for employees whose wages or compensation paid for a bi-weekly period is less than the threshold amount of $4,000. Eligibility is based on a period by period basis. Amounts deferred in 2020 are required to be withheld and paid ratably from wages and compensation paid between January 1, 2021 and April 30, 2021. If not paid back during this time, interest, penalties and additions to tax will start to accrue as of May 1, 2021.
It appears that, under the Notice, an employer will be responsible for remitting the deferred payroll tax on behalf of the employees and will ultimately be responsible for the deferred payroll tax liability of an employee who is terminated prior to May 1, 2021. This ambiguity creates risk to employers that they may have to cover deferred payroll taxes unless they are otherwise able to arrange to collect the tax from the terminated employee. At this time, there is no guidance as to whether the deferred payroll taxes will ultimately be forgiven. Employers should therefore review the risk/benefit of allowing employees to defer their payroll tax obligations under the IRS Notice. Since deferred withholding is not actually required under the Notice, employers may not want to start deferring such withholding unless additional guidance is issued.
Guidance on PPP Loan Forgiveness
On August 24, 2020, the Small Business Administration (“SBA”) released an additional interim final rule providing further guidance on the Paycheck Protection Program (PPP) loan forgiveness requirements. The rule specifically clarified the SBA’s intended treatment of owner-employee compensation thresholds and the treatment of certain non-payroll costs. A summary of the key changes are set forth below:
This article is for informational purposes only and is not intended to be legal advice. If you have any questions on the above, please reach out to Jason Schneider at Schneider Law Group at (919) 324-3599 or at email@example.com.
Schneider Law Group is a business boutique law firm primarily focused on general corporate, M&A, securities, and tax strategy for growth-oriented businesses. For more information, please visit www.schneiderlawgroup.com.