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As we approach the last quarter of 2020, now is a good time to take a look at your withholdings and find out whether you are having enough taxes withheld from your paycheck. The IRS requires 100% of prior year tax (110% for adjusted gross income over $150,00) or 90% of current year tax to be withheld throughout the year. By adjusting your withholdings before the end of the year you can avoid underpayment penalties in April.
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On August 8th, President Trump issued an executive order on payroll tax deferrals for employees. The IRS has followed up that memo with Notice 2020-65. In short, employees making less than $4,000 bi-weekly can defer paying the 6.2% Social Security tax on their wages. This amount is not forgiven and will be collected from the employees’ wages from January 1 through April 30 of 2021.