Payroll Tax Deferral Update

The IRS confirms that employers are not required to participate in the payroll tax deferral made available by the President's memorandum on August 8th during the agency's monthly payroll industry teleconference reports Bloomberg. Kelly Morrison-Lee, an attorney with the IRS, also confirmed that employers can make the decision whether or not to participate. Employers do not have to participate if employees request to have their payroll tax deferred.

Morrison-Lee's statements help provide much needed clarity. This certainly doesn't answer all of the questions employers have; however, many employers are likely to opt out and not seek further answers given the heavy lift participation places on employers and the relatively small, if any, benefit to employees. The confirmation provided by Morrison-Lee may result in payroll software providers deciding not to update their software for participation if the majority of their client base expresses no interest in participating.

Many employers had expressed concerns over providing a short term pay increase to employees through the program only to have to implement a decrease in employee pay beginning January 1st in order to repay the deferred tax. The decrease in pay could hit many employees at a difficult time right after the holiday season.

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