Evaluating the Payroll Tax Deferral with Bodman’s Michelle L. Kolkmeyer

President Trump issued a Presidential Memorandum directing the U.S. Department of Treasury to defer the 6.2% tax employees pay toward Social Security from Sept. 1 until Dec. 31, 2020. Michelle L. Kolkmeyer of Bodman’s Workplace Law Group joined Matt Patton, director of Government Relations for the Detroit Regional Chamber, to offer insight on whether implementing this “deferral,” makes sense for your business.

Who Can Participate?

The President’s payroll tax “holiday” went into effect Sept. 1, allowing employers to defer payroll tax for any employee making less than $104,000 a year, or less than $4,000 per biweekly pay period. The IRS issued guidance clarifying that the program is optional for employers, however, those that do participate will be responsible for collecting and remitting the deferred tax come January. In addition, if an employer decides to opt-in, it is up to them to decide if they will allow employees to choose whether they participate.

Many employers have chosen to opt-out, including large corporations like FedEx, CVS, Wells Fargo, and the United States Postal Service.

“I would say potentially employers should opt-out of this…not only because of the administrative burden that is going to simply take to implement this, but because I think it’s going to end up being a significant burden on employees come Jan. 1,” said Kolkmeyer.

To Withhold or Not Withhold

While the decision of whether to opt-in or opt-out will be different for every employer, Bodman’s staff is encouraging clients to remain transparent with employees and consider the long-term implications.

“Quite frankly the people who really need this, the people that it would be truly helpful for them to get 6.2% back in their paycheck, are not going to be the same people that are able to double withhold after the deferral period is over,” said Kolkmeyer.

Collection Time

At the end of the day, the employer will have the obligation to pay back the withheld taxes come Jan. 1 through April 30, not the employee. As of now there are no in-process tools available for employers who decide to opt-in to the program, however, when the deferral period is over the IRS plans to provide mechanisms for employers to collect the deferred taxes.

“I am hoping to see some sort of collection action for employers,” said Kolkmeyer. “It seems significantly burdensome for an employer to be responsible. If you think of an employer that has 700 employees, or a thousand employees, to institute collection actions for a bunch of your employees would be borderline unfeasible.”