What Does the Payroll Tax Deferment Order Mean for Small Businesses?

Lindsey KingAugust 16, 2020Uncategorized

August 16, 2020

Recently President Trump signed an executive order allowing for the temporary deferment of payroll taxes. Employers have questions. Employees have questions. Kids have questions.

Well, maybe that last one is more likely to be, “Why are noses pointy?” than, “What does this mean for my business?”, but both might be as easy to answer. I am going to do my best to answer some of the biggest questions without saying, “Because,” in exasperation.

In a nutshell, the deferment acts like an interest free loan, allowing employees who make less than $104,000 to take home the 6.2% of their paycheck that currently goes to the federal government to fund Social Security. Employees need to understand that this is not a tax holiday: they will be expected to pay this money back next year.

Right now, employers can choose whether to follow the directive. Choosing to follow it might mean the added expense of updating current payroll systems, which takes both time and money.

Perhaps the biggest question for employers is regarding repayment. Right now, employers, by law, are responsible for the payroll taxes. So what happens when repayment is due? There is no system in place for employees to pay that tax directly. Will employers have to then withhold payroll until the “loan” is paid back? What happens if an employee is no longer with the company?

These are questions that I simply cannot answer right now. So much is in the hands of Congress to address, and they might choose not to.

As for the nose question, my best answer is that it keeps us from drowning when it rains. If you feel like you are drowning in uncertainty, I am here to help. Please don’t hesitate to reach out! I have my pointy nose to the grindstone and am sniffing around for answers to these, and other, questions. Anything I find out will be posted right away on Facebook and Instagram, so please follow me if you aren’t already!

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