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AICPA Requests Guidance, Clarity on Executive Order for Payroll Tax Deferral

Filed under:

COVID Updates, Tax Advisory: U.S. Federal

On August 8, President Donald Trump signed an executive order authorizing a temporary payroll tax deferral for American workers.

The deferral, which will be in effect between September and December 2020, will allow employers to refrain from withholding Social Security tax from employee paychecks. Employees earning about $100,000 or less per year could see an increase to each paycheck during the deferral period.

AICPA’s Letter to the Treasury & the IRS

The American Institute of CPAs (AICPA) have submitted a letter to the Treasury and the Internal Revenue Service (IRS) in response, requesting additional guidance and clarification and providing specific recommendations.

In the letter, the AICPA requests that Treasury and the IRS provide guidance to address a number of concerns precipitated by the memorandum, including:

  1. Guidance stating that the deferral is voluntary and that an “eligible employee” is responsible for making an affirmative election to defer the payroll taxes.
  2. Guidance stating that an “eligible employee” is an employee whose wages are less than $4,000 per bi-weekly pay period.
  3. Guidance stating that the $4,000 limit should apply separately to each employer of an employee.
  4. Guidance stating a payment due date(s) for the deferred taxes and a mechanism for employees to pay the deferred taxes.

Waiting for Guidance on Big Questions

A subsequent announcement by Treasury Secretary Steven Mnuchin indicated that the payroll tax deferral would not be mandatory for employers to implement.

The AICPA’s Vice President of Taxation, Edward Karl, CPA, CGMA said: 

“Since the taxes being discussed are those ‘imposed on the income of each employee,’ a big question we have is whether or not employees will have the option to opt in or out of the program.  Employees should make the deferral decision and should also be responsible for repayment, however, there are certain questions that need to be considered that taxpayers and businesses need guidance on. For example, what if an employee works more than one job? What if the company goes out of business? What if the employee changes jobs? Employers still have to figure out how to implement this policy, but right now, there are too many unknowns.”

As you can see, there are a lot of questions that still need to be answered. Our Tax Advisory Team would advise you to proceed with caution and wait for additional guidance from the Treasury and IRS.  If you have any questions, you should consult with your tax advisor.

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