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Wednesday, September 30, 2020

Payroll tax holiday for whom?

One of the definitions of a holiday is some amount of time that exempts a person or company from a given requirement, duty or assessment.  When a state has a sales tax holiday, it means that no sales tax is collected from consumers on that day.   Nothing is later remitted: the business and consumer is fully exempted from payment of the tax.  Or when an employee is allowed to take off a day for a federal holiday or some holiday that their employer recognizes, the employee is not expected to work an additional day in the future.  

The most recent suddenly declared United States payroll tax holiday however is not a holiday at all, but only a deferral.  And its immediate implementation without advance planning and forethought coupled with its timing towards the end of a calendar year has made it very unattractive for businesses to implement.

In addition to all of the administrative problems with a past mid-year drastic change in payroll withholding and its implication for tax filings and returns is the very unappealing aspect that employees who no longer work for the same company after the end of the year will be leaving their employer with a tax bill.  The timing is especially acute during a time of year when many temporary hires are made for the holiday season, and because often employees make career changes after the end of the year.  Why would any employer therefore want to participate?

In addition, the constitutionality of the change is in question and there are congressional efforts to overturn its implementation which would put employees and employers in an even bigger hailstorm of administrative problems if they were to implement this now.  Even if implemented, the $4,000 threshold has been ill-defined in terms of its the practical application in specific reference to a bi-weekly pay period.  Employers could easily run afoul of implementing its provisions.

The U.S. social security system represents a contract with the American people not only because of amounts that employees and employers alike have paid into the system over many decades but also because it represents the kind of financial security system that should be provided to the citizenry of any advanced, modern society.

While our accounting software users could implement this change without need of any payroll modifications from us (except for problems that may be created with W-2 and 941 filings), we have from the beginning recommended to our users to stay the course.  Keep withholding and remitting social security taxes exactly as you have.  The small interim benefit is temporary, it would increase your administrative costs, and you may be left holding the bag.

More information

White house and IRS memorandums:

Other resources:


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