AICPA requests guidance on payroll tax deferral

By Alistair M. Nevius, J.D.

The AICPA on Wednesday sent a letter to Treasury and the IRS requesting guidance on the recent presidential memorandum deferring some employee payroll taxes until next year. The memorandum, issued by President Donald Trump on Saturday, defers the withholding, deposit, and payment of 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 for any employee whose pretax wages or compensation during any biweekly pay period generally is less than $4,000. It applies to payroll taxes on wages paid from Sept. 1 through Dec. 31, 2020.

The AICPA’s letter, addressed to David Kautter, Treasury’s assistant secretary for tax policy, and Charles Rettig, IRS commissioner, requests guidance on several issues related to how the deferral will be implemented.

Specifically, the AICPA asks for guidance:

  • Stating that an eligible employee is responsible for making an affirmative election to defer the payroll taxes;
  • Stating that an eligible employee can make an affirmative election at any time from Sept. 1, 2020, to Dec. 31, 2020, and if an employee does not elect to defer Social Security taxes, taxes will continue to be withheld, deposited, and paid;
  • Stating that an “eligible employee” is an employee whose wages are less than $4,000 (or equivalent amount depending on the employer’s pay period) per biweekly period;
  • Providing a model notice for employers to furnish to eligible employees to inform them that the election to defer Social Security taxes is available for the Sept. 1, 2020, to Dec. 31, 2020, period;
  • Stating that the payroll amount used to determine eligibility is a cliff; if the wage amount for a specified pay period is above $4,000 or the equivalent amount based on the employer’s regular payroll periods, no deferral is permitted;
  • Stating that the $4,000 limit should apply separately to each employer of an employee;
  • Stating that it is the responsibility of the employee and not the employer to pay the deferred payroll taxes;
  • Stating which penalties are waived as a result of this deferral, including the penalty applicable to responsible parties;
  • Addressing whether the increase in take-home pay attributable to the deferred taxes can be used to satisfy other employee obligations such as Sec. 401(k) loan repayments, garnishments, and child support payments; and
  • Stating a payment due date(s) for the deferred taxes and a mechanism for employees to pay the deferred taxes.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the JofA’s coronavirus resources page.

For tax-related resources, visit the AICPA’s COVID-19: Tax resources page.

Alistair M. Nevius, J.D., (Alistair.Nevius@aicpa-cima.com) is The Tax Adviser’s editor in chief.

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