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The Payroll Tax Holiday and the Payroll Tax Reduction Plan 2.0

| September 08, 2020

There have been quite a few changes in the tax space recently, particularly regarding payroll taxes, and we have been inundated with questions regarding just that. So, for those of you who do not want to put yourself to sleep with my dull writing regarding such, you can view that previously recorded webinar below.

 


 

For those who can tolerate reading about the exciting world of tax planning, the changes in the tax space have only increased the tax benefits for companies that take advantage of our Payroll Tax Reduction Plan. You can read my original posting covering the Payroll Tax Reduction Plan in depth here, but I’ve highlighted the benefits below, along with some of the misinformation about the “payroll tax holiday.”

Benefits of the Payroll Tax Reduction Plan:

  • The employer receives an additional annual tax savings of up to $1,400.00 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 net pay DOES NOT change

 Employer Eligibility Requirements:

  • 10 or more full time W2 employees
  • 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

Changes that allow even larger tax breaks:

  • The implementation of a Medical Expense Reimbursement Plan (MERP) allows for an additional tax write off for the business
  • This allows the business to reduce their annual payroll tax burden by $1,400.00 AND creates an annual business tax deduction of $13,500 year per eligible employee

The Payroll Tax Holiday

We have been hearing conflicting opinions regarding the “payroll tax holiday,” so we decided to go straight to the source. While changes could still happen, as of the most recent memorandum the key points are:

  • It is a deferment NOT forgiveness
    • There is no interest on the deferment
    • Deferment begins 9.1.2020 and ends 12.31.2020
  • Employees making less than $100,000.00 a year or $4,000.00 per bi-weekly pay period are eligible
  • Only employees are eligible for the deferment
  • Treasure Secretary Mnuchin is working on legislation to forgive the deferment, but this may require legislative action
  • If congress is unable to pass said legislation to forgive the deferment employees will be required to start paying back the deferment in January of 2021

 

If you have any questions regarding any of the above information you can always reach out to me directly at my contact information listed below or reach out to my office here.

 

Dan Nuwash, MBA

Founder, Managing Partner

Finance For Thought

www.financeforthought.com
Direct: (910) 546-5463
dnuwash@americanportfolios.com

 

Sources:

https://www.irs.gov/

https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/retention-top-benefits-objective.aspx

https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/alter-benefits-attract-retain.aspx

https://www.irs.gov/government-entities/federal-state-local-governments/faqs-for-government-entities-regarding-cafeteria-plans

https://www.treasury.gov/press-center/press-releases/pages/hp526.aspx

https://www.investopedia.com/terms/c/cafeteriaplan.asp

https://www.investopedia.com/articles/personal-finance/080816/section-125-plan-cafeteria-plan-how-does-it-work.asp

https://www.investopedia.com/ask/answers/111015/are-cafeteria-plans-subject-fica-erisa-or-futa.asp

https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/