On August 8, 2020, the President of the United States issued a memorandum directing the Secretary of the Treasury to defer the withholding of certain payroll taxes, namely FICA, that would normally be paid between September 1, 2020 and December 31, 2020. Like many payroll providers, Suran Systems, Inc. has been awaiting guidance from the IRS on how this deferral will be implemented before adjusting our software to accommodate this change.
On Friday, August 28, 2020, the IRS issued Notice 2020-65 providing initial guidance on this directive. In particular, the IRS clarified that any taxes deferred between September 1, 2020 and December 31, 2020 will be payable between January 1, 2021 and April 30, 2021. The notice also states the liability to collect and pay these employee taxes falls to the employer, even if the employee is no longer employed by that employer.
While Notice 2020-65 answers some questions about deferring this tax, other questions remain, especially related to reporting deferred taxes.
On September 24 we received new information from our payroll tax form partner, Aatrix:
The IRS released a draft version of the 941 Form to be used effective for 3rd quarter filings due 10/31/2020. The form includes a new line to report Deferred Employee SS Tax (line 24). This amount must also be reported on line 13b of the 941 form.
The form that is currently released will be acceptable to eFile for 3rd quarter as long as there is no Employee SS Tax Deferral amount to report. If customers need to report Employee SS Tax Deferral they will have to wait until the IRS finalizes that form and we can release it. The message on the form, that will be released early next week, will read "Use this form to file only if you do NOT have any Employee SS Tax Deferral to report for 3rd Quarter, otherwise check back for updates."
This remains an evolving situation. No guidance has been provided for how deferred withholdings should be tracked for individual reporting on a W-2, nor is any guidance available for how payback on deferred withholding will be reported.
Based on our current understanding CDM+, DonorWorks, and DBPayroll would need to accomplish the following tasks to completely implement this tax deferral. Each task falls into one of these categories:
- CLEAR Implementing this change is straight-forward
- CLARIFICATION REQUIRED Once the IRS clarifies how deferred taxes are to be reported, this task is straight-forward
- ADDITIONAL GUIDANCE REQUIRED It is unclear how this task is to be implemented without explicit guidance from the IRS
|Provide an option to defer withholding the tax.|
|Avoid withholding the tax on affected payroll.|
|Properly report wages as taxable, not-taxable, deferred, or some other status as yet-to-be-determined.|
ADDITIONAL GUIDANCE REQUIRED
|Track the total deferred tax liability for each employee.|
|Provide employers a total they need to collect and remit between January 1 and April 30 2021 for each employee.|
|Withhold these deferred taxes on 2021 payroll.|
|Provide compliant reporting in 2021 for the remittance of deferred taxes.|
ADDITIONAL GUIDANCE REQUIRED
Further guidance from the IRS may also increase the scope of these changes as additional elements of the deferral are discussed and implemented by the IRS.
At this time, our recommendation is that employers do NOT defer withholding and paying FICA for employees for these reasons:
- Per guidance from the IRS, deferring these taxes increases employer liability to pay the taxes out of pocket should an employee leave their position and arrangements cannot be made to pay this tax next year.
- Furthermore, until the IRS provides additional guidance on reporting deferred taxes and their eventual remittance, Suran's software cannot effectively implement this change.
- Until Suran has complete guidance from the IRS and can enhance our software to correctly accommodate this change, deferring, recording, reporting, and remitting deferred wages must be implemented manually by employers. This manual work will cause additional overhead on the employer's behalf, and employers will need to operate under inconclusive guidance on reporting.
Suran's Plan Forward
Since posting this guide and speaking with numerous clients we've yet to encounter anyone asking for program changes to accommodate this deferral. Any changes we would make would be deployed by late October or early November 2020, leaving 2 months or less for the change to be in effect.
Due to this lack of interest, the low impact of a software change, and in conjunction with our recommendation above, our plan is to NOT perform any software changes to our payroll software to accommodate this tax deferral.
Aatrix will support an updated 941 and (assumedly) an updated W-2 allowing any clients manually tracking this deferral to enter relevant figures on their tax forms.
If you have a strong desire for a software change to support the deferral please contact us at email@example.com.
Last updated: September 24, 2020