Smart Ways To Handle Pandemic Tax Deferrals And Subsidies

Employers and employees are subject to payroll taxes on wages paid. The FICA portion of payroll taxes consists of a 6.2% tax which must be withheld from an employee’s wages, up to the current wage base of $137,700. Employers must match the 6.2% FICA tax and pay that amount as well. Medicare taxes of 1.45% are also imposed on employee wages and employers are required to match this amount as well.

The tax deferral under the CARES Act applies to wages paid in 2020 but it only applies with respect to FICA taxes, not to Medicare taxes. The tax deferral also applies to only the employer’s matching portion; the 6.2% tax imposed on employee wages still must be withheld from employees’ wages and paid to the government. The same holds true with self-employed individuals as the CARES Act tax deferral only applies to the equivalent of the 6.2% employer share of FICA taxes.

: Many of the CARES Act and other favorable tax provisions have eligibility restrictions and benefit only certain size businesses, businesses with income below a certain level and businesses with only a certain number of employees. No such restrictions apply with respect to the payroll tax deferral under the CARES Act. Moreover, no special election is required to defer payment. Employers must simply defer payment as appropriate.

Also, there’s the recently announced payroll tax deferral for employees earning less than $104,000 per year. The deferral applies to the employees’ share of FICA taxes. While the details continue to emerge, eligible employees can defer payroll taxes on their wages paid from Sept. 1, 2020, through the end of this tax year. The new incentive is simply a deferral and must be repaid by employees in 2021, meaning workers will face reduced paychecks in the future to repay the deferred taxes.

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Source: Forbes - 🏆 394. / 53 Read more »