In response to some of the challenges facing our economy, especially the impact on small businesses, President Donald Trump signed an executive order this past August. This executive order included a payroll tax deferment allowing employers to stop collecting payroll tax temporarily. The deferment applies to Americans making less than a certain amount per year which took effect on September 1st and will remain in effect until January. The administration has also indicated a possible willingness to extend the payroll tax after the deadline or to even consider terminating the tax altogether.


For small business owners, the payroll tax deferment can be confusing and raise a lot of questions. In this blog post from the payroll help team in Boulay’s Accounting Clarity department, we’ll explain the payroll tax deferment and answer some of your most pressing questions.

Deferment Basics

The goal of the payroll tax deferment is to provide COVID-19 relief by temporarily putting more money in workers’ pockets via a “payroll tax holiday.” The payroll tax funds Medicare, the social security program, and similar programs. Workers who earn less than $104,000 or $4,000 per two-week period are eligible to participate in the deferment.


However, this money will have to be paid back eventually. If you suspend payroll tax collection during the tax holiday, it must be paid back during the period from January 1st through April 30th next year. Once that period has passed, employers will begin to accrue interest and penalties on unpaid amounts.


One of the most common questions small business owners have asked is whether compliance with the program is mandatory. There are currently no penalties for choosing not to participate in the payroll tax holiday. The IRS guidance was also unclear on how employees may opt-out of the program.


Here are a few more questions employers have raised about the payroll tax deferment:


        If the payroll tax has to be repaid, what is the benefit to employees? The payroll tax holiday is meant to serve as an interest-free loan to American workers.


        How will exiting employees repay payroll taxes? Employers will be responsible for making these repayment arrangements.


        Will employers be responsible for unpaid payroll taxes by employees that are no longer with them after the deferment period? Employers will need to repay these taxes; however, their deadline may be extended in some circumstances.

Get the Payroll Help You Need for Your Small Business

If you’re unsure about how to handle the payroll tax deferment, getting support from a professional payroll help team is your best bet. Boulay’s Accounting Clarity experts can help you navigate the payroll tax holiday to avoid getting hit with unexpected penalties down the road. In addition to payroll support and outsourced bookkeeping services, we also provide controller and CFO services. To get the payroll help you need, give us a call at 952.893.9320 or contact us online today.