Wolters Kluwer provides an update on the latest tax developments related to COVID-19 pandemic response.
Key items in current COVID-19 tax developments include:
- COVID-19 legislation. The House, Senate, and President Trump’s administration have so far been unable to agree on an additional round of COVID-19 legislation. Tax items under consideration include a second round of economic stimulus payments, expanding the employee retention credit, and new COVID-related tax credits
- Payroll tax deferral. President Trump’s administration had been pushing for payroll tax forgiveness, but neither the House nor the Senate have endorsed the proposal. The President’s executive order provides for a payroll tax deferral from September 1 to December 31, 2020. The Administration felt that it only had the power to issue a deferral, not a forgiveness, order. The order only addresses the 6.2 percent employee’s share of Social Security taxes but does not apply to the 1.45 percent employee’s share of Medicare taxes
- Income limit. The payroll tax deferral only applies to employees with bi-weekly pre-tax income of less than $4,000
- Treasury guidance. The US Treasury is expected to issue guidance on how the deferral will work and address several uncertainties. It appears under the order that employers that defer the payroll taxes would have to start collecting those taxes from payroll beginning in January 2021
- Employer response. It is not clear at this time if employers will start deferral immediately given such issues as whether the deferral is optional or required, the possible inability to recover deferred taxes from employees at a later time, and possible litigation over the legality of the executive order. Some employers may have already deferred payroll taxes starting earlier in 2020 under provisions of the CARES Act, a portion of which is also due to be repaid in 2021
The tax briefing from Wolters Kluwer Tax & Accounting dated August 10, 2020 and titled “2020 Payroll Tax Deferral Order” is available for download now. Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, can help explain the various tax implications of President Trump’s action and discuss how Congressional stimulus proposals may affect business and individual taxpayers.
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