President Donald Trump signed an executive order over the weekend deferring payroll tax collection for employees through the end of the year.
Kathryn Pittman, Associate Tax Director with the Louisiana accounting firm Postlethwaite and Netterville, says it is very important to keep in mind that this is not a payroll tax holiday.
“It is expected at this current time, unless something changes, that it would be due at a later date. We are not sure when that would be or how long the deferral would be or what kinds of payment terms there would be on the deferral,” says Pittman.
The executive order was part of a suite of orders, others targeting unemployment insurance, evictions, and student loans. The constitutionality of the orders is in question and a legal challenge is expected.
The president is pushing to have this deferral made into a tax holiday by the Treasury or Congress, but Pittman’s recommendation is to continue paying your usual payroll taxes to the IRS until more clarity is provided.
“I know a lot of people are probably going to want to jump on this but we do think it is dangerous if you find out in six months, where you don’t know where the economy is going to be, that the IRS says now you owe us all of your back payroll,” says Pittman.
Pittman says if Congress or the Treasury Department converts the deferral into a true tax holiday then you’ll likely receive back pay for payments made during this period.
The order has led to some misunderstandings and Pittman recommends companies be clear about what their policy will be regarding the deferral offer while the issue is sorted out in D.C.
“It may require some conversations between payroll departments, employers, and employees. Clear lines of communications on this issue will be important,” says Pittman.