Our understanding is that this payroll tax deferral is not mandatory, despite not being explicitly stated in the executive order or the IRS notice. Repayment will occur ratably from January 1, 2021 through April 30, 2021 and if needed employers can “make arrangements to otherwise collect” the deferred taxes if an employee is no longer employed by them during the repayment period. Details are not provided on how such repayment would occur, it is possible that if an employee terminates their employment the employer could collect the deferred payroll tax at the time of the final payroll, or work out an agreement to be repaid by the employee during the later repayment period. If the taxes are not withheld and deposited by April 30, 2021 the employer will likely be subject to penalties and interest.
It is extremely important that you, the employer, inform employees that this is not a permanent reduction in tax, only a deferral. The employee is ultimately responsible for paying back any amounts deferred. It is also very likely that the employee will feel the sting of the deferral after the new year as his or her withholding will be increased to make up for the temporary suspension withholding of the Social Security tax.
If you have further questions, contact your accountant.
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