Date: August 13, 2020
By: Nicole Tolliver, Payroll Tax Knowledge Center Consultant
Executive Order – Payroll Tax Holiday Updates:
On Saturday August 8th, the executive order for a payroll tax holiday was signed, calling for a deferral of payroll tax obligations. Below are a few updates as more information has been made available:
- The deferral would cover the period for wages paid on September 1, 2020 through December 31, 2020 deferring the FICA taxes used to fund Social Security and Medicare.
- The Executive Order lists the deferral available to any employee whose biweekly pay that is less than $4,000 on a pre-tax basis. The annual salary calculates to less than $104,000 for eligibility.
- The tax deferral would be for the employee portion only. Employers are still to pay and report their portions.
To learn more about Social Security and Medicare taxes and wage limits, visit our 2020 Federal Tax Snapshot.
Date: August 10, 2020
By: Nicole Tolliver, The Payroll Tax Knowledge Consultant
Executive Order Signed for Payroll Tax Holiday
On Saturday August 8th, the executive order for a payroll tax holiday has been signed. The order seeks to defer Social Security tax and Medicare tax for the employee portion of earnings of less than $100,000 a year. Currently, the employer is required to pay their portion of the tax as well as withhold the matching amount from the employee. The employer and employee tax rate for social security is 6.20% with a taxable wage limit of $137,700 and Medicare tax is 1.45% (an additional .90% tax required for employee only on earnings in excess of $200,000). However, the executive order calls for a deferment of these employee tax portions through the rest of the 2020 year.
Although, the executive order will still need to pass through congress, there could be questions circling among many in the payroll community regarding the potential impact to their employee population across the board. Since the executive order is a deferment of the employee tax portion, where would the liability stand? Would employers be required to collect and remit the employee portion to the IRS or would the responsibility fall on employee to reconcile during filing season? In addition, would employers still be required to report the taxable wages for both Social Security and Medicare during the deferment period?
Certainly the above questions are just a snapshot of the multitude of concerns many payroll professionals may have regarding the recent tax news. However, this is an opportunity to look at internal data within your organization. Start by understanding the number of impacted employees who would fall within the threshold of under $100,000. Next determine, from a systems perspective, of how would the employee portion for Social Security and Medicare tax be shut off. There may be other internal processes specific to your organization to consider as well. This is a good time to be proactive in your discussions and gatherings of data in order to position your department in the event the executive order is passed.
Form W-4 FAQ’s Reminder!
With the redesign of Form W-4 for this year, The Payroll Tax Knowledge Center wanted to highlight some key reminders to help you maintain compliance from the employer side and to be able to assist employees with general questions. For more FAQ’s regarding Form W-4, please visit the IRS site here.
When should employers start using the redesigned Form W-4?
January 1, 2020
What is the difference from Form W-4 2019 from Form W-4 2020?
The new Form W-4 no longer uses the concept of withholding allowances which was previously tied to the amount of an employee’s personal exemptions. With the new Form W-4, it takes into account multiple jobs, credits for the full year for children and other dependants. In addition, the new form takes into account other adjustments such as other full year income (not from jobs), and full year deductions over than standard deductions.
Similar to the previous form, employees can still indicate an extra withholding. This amount must be indicated on line 4(c) of the new Form W-4.
Are existing employees required to fill out a new Form W-4?
No. Existing employees are only required to complete the new Form W-4 if they are making adjustments to their withholding.
What do I do if an existing employee submits the 2019 Form W-4 instead of the 2020 Form W-4 to adjust their withholding for 2020?
Reject it and request that changes be submitted on the new form.
What do I do if a new hire or rehire for 2020 does not submit a Form W-4?
Per the IRS, any employee who fails to furnish a Form W-4 will be treated as a single filer with no other adjustments.
As an employer, all employees should have a Form W-4 on file to ensure that the correct federal income tax is being withheld from the employee’s pay.
I am getting questions from employees who wish to exempt from federal income withholding and them not seeing where to indicate that on the form. How do I guide them?
Per the redesign Form W-4, if an employee wishes to exempt from having federal income taxes withheld and providing they certify that they meet the criteria outline on the form, they may indicated “Exempt” on Form W-4 in the space below Step 4(c). Then, complete Steps 1(a), 1(b), and 5. The form also indicates that no other steps are needed. Please refer to the Form’s instructions here.
When does an employee “exemption” status expire?
February 16, 2021.