A recent IRS notice prompted major controversy with its allowance for a suspension on employer withholdings. Commonly referred to as the payroll tax holiday, this suspension remains poorly understood among the many people it purports to benefit. What’s more, a lot of reports on both sides of the issue exaggerate the reality of this tax arrangement. This makes it difficult for employers to determine whether it’s actually worth utilizing. To help, we separate fact from fiction below:
Not For Everybody
Employees buoyed by the idea of a break from withholdings should think twice before getting excited. While the proposed suspension will technically occur between September 1 and December 31, 2020, it won’t apply to everybody. First, the IRS imposes an income limit: the suspension is only available to employees who earn less than $4,000 for every biweekly pay period. What’s more, while employees will be spared withholdings during the suspension period, this doesn’t mean that they’re off the hook indefinitely. Instead, employers will have the opportunity to repay outstanding tax obligations during the first several months of 2021.
The limitations above will keep high earners from seeing a break from withholdings, but that’s only the beginning. Many people will never ‘celebrate’ this holiday simply because employers will not be forced to comply. Many business owners prefer to carry on as usual, as the requirement to repay payroll taxes seems like too much of a headache. Others would rather give their employees a break in the aftermath of reduced hours and furloughs.
Many employers also fear the possibility of suffering the Trust Fund Recovery Penalty (TFRP) should their business ultimately go under. Unfortunately, the IRS has yet to truly clarify the likelihood of this situation. Until then, the safest option may involve withholding as usual.
No matter what you expect from the payroll tax holiday, you can benefit from the guidance of a tax resolution service. Look to the Highland Tax Group for insight during this confusing time. Reach out today to learn more about your options.