Earlier this month, President Trump announced what people are calling “Payroll Tax Cuts” as a memorandum, and there are a lot of questions. Here are some of the highlights:
~It is a memorandum that says “Hey Mnuchin, here is what I want you to do, now figure out how to do it”. What that means is that there is a WHOLE lot that we don’t know, and won’t know until we get some final guidance as this thing is supposed to take affect on Sept 1. Remember the PPP mess where we were still getting guidance (and are still getting guidance) months after it rolled out? Yeah… that’s what we are expecting again with this.
~It proposes a DEFERRAL of the employee portion of the Social Security Tax withholding. Why is this significant? Because the President has suggested that Mnuchin and his team look at the possibility of forgiving this portion, but if that doesn’t turn out viable, then it is simply a deferral and either the employee or the employer will have to pay it back at a later date.
~If we have to pay it back, what will that look like? We aren’t sure. A few possible scenarios are that either the employee will owe it back at some time in 2021 when they file their 2020 tax return, or perhaps the employers will have to withhold extra next year and pay it back over time. There are literally a million other scenarios that could play out, but this ambiguity is what has tax professionals nervous.
~Do I have to participate? We don’t know yet. We are hoping that the deferral will be voluntary and not forced, but again, we do not know and much of that will depend on the other rules that are implemented along with this.
~Does this impact my SE taxes? Again, we don’t know. Stay tuned.
~Here is what we do know: No matter which way this plays out, if you are an employer, get your employment attorneys and HR involved right away. Get waivers and training in place, and be sure your employees know the possibility of the payback at a later date. If you are an employee, talk to your tax professional and find out what this means for you both short and long term, and what you need to be prepared to pay back in the event this is not forgiven.
As always, I will be keeping you appraised as we learn more when this thing rolls out on Sept 1. This post is not intended to be tax or legal advice, but simply to get you thinking. Always lean on your business and professional resources team for advice on how this impacts you.
Feel free to reach out if I can be of assistance: Sabrina@SernaTax.com