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Planning, Evaluation Needed for Businesses Considering Payroll Tax Deferral

If you’re a small business owner, there’s no doubt you might have a few questions related to the recent announcement from the federal government granting employers the ability to stop withholding a portion of the employee’s responsibility of the payroll tax beginning on Sept. 1, 2020.

And the top question on your mind is probably “do we have to offer this deferral?”

The answer is no.

Each small business will have to determine for itself whether the benefits outweigh the risks when it comes to deferring a portion of their employee’s payroll tax obligation. As we shared in our earlier blog on this topic, it’s important to remember this is simply a temporary delay of the individual’s obligations to pay that tax on wages paid from Sept. 1, 2020 through the end of the calendar year.

New guidelines provided by the federal government outline how those deferred tax payments will be paid during the first four months of 2021, with employees ultimately responsible for making those necessary payments. However, should an employee not be able to pay, the burden could fall on the employer.

As such, if you’re a small business owner, it might not be advantageous for you to provide this deferral given the uncertainty — and potential liability — around this memorandum.

For instance, consider that some employees simply may not be able to make the payment, possibly passing on the responsibility to you, the employer. Likewise, if you’re a small business owner who relies on seasonal workers or operates in an industry with a higher churn on employment, you could get saddled with those payment obligations if some of your workers have moved on.

Given this, offering the payroll tax deferral might not be in your small business’s best interest, and we would advise small business owners to approach this decision with caution, weighing all the pros and cons at work here.

At PADGETT BUSINESS SERVICES®, we specialize in providing advisory services to small businesses, knowing that it’s important to have a trusted advisor you can count on when making these tough choices. Find an office near you today, and learn how one of our experienced small business advisors can equip you with the knowledge needed to navigate challenges like this one.

We encourage you to contact us with any questions.

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