“Tax Holiday”…Hmmm, How Does a Payroll Tax Deferral Work for Employers and Employees?

Recently, the US Treasury Department released guidelines on President Trump’s proposed “tax holiday”.

What is a “Tax Holiday” for Employees?

Employees have the option to defer payroll tax withholdings starting September 1, 2020 through December 31, 2020.  Employees are responsible for paying back owed, undeducted taxes, no later than April 2021.

This new tax deferral option is available for employees with a  biweekly paycheck of less than $4,000, before taxes.

 Supporters of this tax deferral program cite a benefit of postponing payroll taxes withholdings from employee paychecks is the expected injection of these funds fairly immediately into the economy.  Skeptics do not anticipate a positive economic impact due to the current high unemployment rate with millions of people not currently collecting paychecks.

Employer Impact?

Employers can elect to participate or abstain from the payroll tax deferral program. Those who participate will stop employee payroll tax withholdings until January 1, 2021, but must begin withholding taxes in larger amounts so employees can “pay back” the deferred tax amount (September – December) by April 2021.

To date, the Internal Revenue Service (IRS) has not provided clear guidance as to how employers will collect deferred taxes from an employee who terminates (voluntarily or involuntarily) from a company before the end of April 2021.


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