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. Suran has contacted the IRS to receive further guidance on:
- How deferred taxes will be reported on the 3rd and 4th quarter 2020 941 forms.
- How remitted tax will be required on the 1st and 2nd quarter 2021 941 forms.
- How deferring this tax will affect 2020 and 2021 W-2s.
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.
We will update this page as more information becomes available from the IRS.
Last updated: August 31, 2020