CARES Act Payroll Tax Deferral: What You May Owe and How You Can Reduce It

Dan Nuwash | April 23, 2020

If you’ve ever had the pleasure of reading a bill passed by Congress, and you managed not to pull your hair out or pop a blood vessel trying to determine what the bill means, you may have come to that exact conclusion; “what does this mean?”

I hope it is comforting to tell you that, you are not alone if you have come to that conclusion. It is often difficult to determine what exactly are the legal provisions within a bill, which is why we have heard members of congress make statements like “we have to pass it to find out what’s in it.”

While this may seem like a ridiculous statement for a legislator to make (and I’m not arguing it is), it’s not entirely inaccurate. The reality is, we do not need to pass a bill to find out what’s in it, we need to pass a bill to find out how it will be interpreted and enforced.

What does this mean for businesses and their payroll tax obligations?

Here’s what we do know:

The CARES Act allows for up to a 50% deferral of payroll taxes
Any deferred payroll taxes will have to be paid back in full
- 50% of the amount owed will need to be paid back by December 31, 2021
- The remaining amount will have to be paid back by December 31, 2022

Here’s what’s unclear:

Employers can defer 100% of the employer contribution for payroll taxes
Will there be interest or fees on any deferred payroll taxes

Employers only pay 50% of payroll taxes, the other 50% is paid by the employee. So, some “experts” are interpreting this as the employer can defer 100% of what the employer is obligated to pay. The reality is any expert should be willing to say, “I’m not entirely sure so let’s air on the side of caution.”

While I did not read anything within the CARES Act that states deferred taxes will not accrue interest or fees, it is common for deferred taxes or extensions to accrue interest and fees. Frankly, I don’t trust the federal government enough to not charge interest or fees. So I’m airing on the side of caution and hoping for the best while planning for the worst.

What can businesses do to reduce their payroll taxes?

Most businesses overlook their ability to reduce their payroll taxes by implementing a Payroll Tax Reduction Plan. By doing so a business is not just reducing its overall payroll tax burden, if a business does decide to defer any of those payroll taxes, it would reduce the amount the business would owe and create a savings that can be used to help payback the owed amount.

You can view our previously recorded webinar covering the Payroll Tax Reduction Plan here. You can also see the high-level benefits and guidelines below. And if you’re enough of a masochist to want to endure more of my writing, you can read my article covering the Payroll Tax Reduction Plan here.

Key Benefits:

The employer receives an annual tax savings of up to $1,400 per participating employee
Through the limited medical benefit provider, employee receives tax credits to fund additional healthcare and insurance benefits
The tax credits reduce overall taxable income, decreasing the businesses FICA and payroll taxes
On average employee benefits quadruple and their take home pay DOES NOT change

Employer Eligibility Requirements:

25 or more full time W2 employees making at least $25,000 a year.
Employer must currently offer a healthcare plan

Employee Eligibility Requirements:

Must currently have healthcare (it does not have to be with the employer, it can be through a spouse, parent the exchange ect)
Must be full-time with the employer
Must be a W2 Employee
Must be 18 years or older
Must have an annual income of $25,000 or more with the same employer

We will be hosting webinars are seminars covering tax and cost reduction strategies. You can view the events portion of our website here to stay up to date and register. If you or any of your colleagues have any questions or inquiries regarding any of the above information you can reach out to my office here, or you can reach me directly at the contact information listed below.

Dan Nuwash, MBA

Founder and Managing Partner

Finance For Thought

www.FinanceForThought.com

Direct: 910.546.5463

Email: dnuwash@americanportfolios.com

Sources:

https://www.congress.gov/bill/116th-congress/house-bill/748/text

https://www.congress.gov/bill/116th-congress/house-bill/748/text#toc-H4E695DBCAC3745CCAFEA878227D0491F

https://uscode.house.gov/view.xhtml?req=(title:26%20section:1401%20edition:prelim)

https://uscode.house.gov/view.xhtml?req=(title:26%20section:6654%20edition:prelim)

https://uscode.house.gov/view.xhtml?req=(title:15%20section:636%20edition:prelim)