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  • Social Security Benefits Increase For 2022 

    Just this month, the Social Security Administration announced that the 2022 Social Security wage base will increase $4,200 from $142,800 to $147,000. This cost-of-living adjustment (COLA) equates to a 5.9 percent increase to monthly checks in 2022. The adjustment will be considered the largest boost in decades. The Washington Post stated, “The adjustment will be made for 64 million Social Security beneficiaries as well as eight million Supplemental Security Income recipients. Some Americans receive both benefits.” The adjustment is calculated based on the Labor Department’s measure of inflation faced by blue-collar workers.  

    Because of the wage base increase, higher-earning individuals will then be taxed a larger amount. “The maximum Social Security tax per worker will be $18,228 or a maximum $9,114 withheld from a highly paid employee’s 2022 paycheck.” Social Security tax is one of two taxes all employers are required to withhold under the Federal Insurance Contributions Act (FICA), with the other being Medicare Tax. Because FICA tax rates are statutorily set, they can only be changed through new tax law.  

    Social Security is the biggest program funded by payroll taxes paid by both workers and employers, along with being the largest source of retirement income for most older Americans. Some think that this could be tied with increases in healthcare and housing costs. The price of prescription drugs has also gone up exponentially.  

    Ensuring that you have the most up-to-date legislation for your payroll can be a heavy burden that requires significant time and effort. As your trusted payroll partner, GMS can automate the process and help ensure you are compliant with all federal, state, and local regulations.  

     Visit our website to learn more, or contact us here: https://www.groupmgmt.com/contact/ 

  • In response to the economic impact of the COVID-19 outbreak, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. Among many different types of loans and incentives, the CARES Act introduced tax relief for businesses in the form of payroll tax credits, enhanced net operating loss (NOL) deductions, and payroll tax deferment. However, the payroll tax deferral section of the CARES Act raised several questions for small and medium-sized businesses, especially those that received loans from the Paycheck Protection Program (PPP).

    To help answer these questions, the IRS released guidance on April 10, 2020, regarding payroll tax deferrals. Here’s what business owners need to know when it comes to paying taxes on social security this year.

     Small business owner defers payroll taxes under CARES Act.

    What deposits and payments can employers defer?

    Section 2302 of the CARES Act enables employers to defer certain payroll taxes, specifically the employer contribution of Federal Insurance Contributions Act (FICA) taxes, otherwise referred to as the employer’s portion of social security taxes. Typically, employers are required to pay 6.2 percent of social security taxes for each employee’s covered wages on a semi-weekly or monthly basis.

    The deferral applies to deposits and payments of the employer’s share of the 6.2 percent social security tax owed for 2020. Without the CARES Act, this tax would have otherwise been required to be made during the period beginning on March 27, 2020, and ending December 31, 2020. There is no dollar cap on the total amount of an employer’s social security taxes that can be deferred.

    It’s important to note that the CARES Act does not cover other payroll taxes, such as the Medicare tax (1.45 percent) or the employee’s share of the social security tax. The CARES Act does, however, outline tax deferrals in an equivalent amount for self-employed individuals subject to the Self Employment Contributions Act (SECA) and employers and employees subject to the Railroad Retirement Tax Act (RRTA).

     

    When are deferred tax payments due?

    In order to avoid penalties, the deferred payments of the employer’s share of social security tax must be deposited by the following dates:

    • On December 31, 2021, 50 percent of the deferred amount must be paid.
    • On December 21, 2022, the remaining amount must be paid.

     

    Who is eligible to defer tax payments?

    All employers, regardless of size, may defer the deposit and payment of the employer’s share of social security tax. However, employers who received PPP loans become ineligible to continue deferring tax payments after receiving notice from the lender that the loan is forgiven. The Small Business Administration (SBA) says “the loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities” if you are able to maintain your workforce.

    For payments deferred through the forgiveness date, employers may continue to defer payments until the end of 2021 and 2022 as described above without incurring penalties for failure to pay. The CARES Act also states that employers who have had a loan forgiven under the U.S. Treasury Program Management Authority are also ineligible to defer payments.

     

    Do employers need to make special elections to defer tax payments?

    No, employers do not need to make any special elections to defer deposits and payments for payroll taxes. The IRS will revise the Employer’s Quarterly Federal Tax Return (Form 941) for the second quarter (April through June 2020). The IRS says information will soon be released regarding deposits and payments otherwise due on or after March 27, 2020, for the first quarter (January through March 2020).

    Contact us if you have any HR or payroll-related questions on how to keep things running smoothly through this transition. 

  • On Aug. 8, 2020, President Trump signed an executive order to allow employees to defer a portion of payroll taxes until 2021. Since news of the order broke, business owners have sought additional clarity on how this payroll tax will work and how it will impact their responsibilities as employers. Let’s break down some of the specifics of the proposed pay tax deferral and what those details mean for small business owners.

    A paycheck with tax deductions affected by the payroll tax deferral executive order.

    What Does the New Payroll Tax Deferral Change?

    In short, the executive order allows employees who make less than $4,000 every two weeks (equivalent to less than $104,000 per year) to defer part of their payroll tax payment until 2021. According to the order, employees would have the choice to opt-in for this tax deferral. If an employee elects to defer payments, the employer must honor this decision.

    Payroll taxes are defined as the FICA taxes taken out of each paycheck to fund Social Security and Medicare programs. The executive memo signed by Trump only refers to the Social Security portion of these taxes, which makes up 6.2 percent of each paycheck. As such, an employee can defer up to $2,232 depending on that person’s salary.

    While both employees and employers pay these payroll taxes, the payroll tax deferral only impacts what the employee owes in taxes. Typically, both employers and employees contribute 6.2 percent of an employee’s wages in Social Security tax. Employers would still have to pay their share of these taxes even if the employee opts to defer their portion until 2021.

    When Will This Deferral be in Effect?

    According to the executive memo, employees can defer their payment of Social Security taxes starting Sept. 1, 2020. The deferral period continues through Dec. 31, 2020, giving employees a four-month window to push back their share of Social Security tax.

    Will These Deferrals be Forgiven?

    As of yet, it appears that employees who defer their Social Security taxes will still need to pay back the deferred amount in 2021. While the President signed the executive order to defer these taxes, it’s important to note that he can only delay the payment dates.

    Only Congress has the ability to reduce taxes, meaning that the executive order in question is simply a means to push back payment of these taxes without action from Congress. As such, employees who opt to defer these taxes should prepare to owe upwards of $2,232 in 2021.

    How Does This Deferral Impact Employers?

    While the payroll tax deferral only applies to employees’ share of Social Security taxes, the deferral will still have a direct impact on employers. According to the order, employers must honor employee requests to defer their taxes and update their payroll process to accommodate these deferrals.

    In addition to payroll system changes, there may be additional complications for employers. Employers are legally responsible for withholding payroll taxes, including an employee’s share of Social Security tax. It’s currently uncertain whether deferring these taxes would complicate IRS requirements. As of Aug. 27, 2020, the IRS and U.S. Treasury Department still have not offered guidance regarding the executive order, effectively leaving business owners in a bind.

    In addition, it’s also unclear if employers could ultimately be liable to pay back deferred taxes in 2021 in certain situations. The uncertainties surrounding the executive order is a notable concern and will require clarification from the IRS and other government bodies to allow employers to fully understand how the payroll tax deferral will impact them.

    How Can Small Business Owners Prepare for the Payroll Tax Deferral?

    To start, you’ll want to educate your employees about the current terms of the payroll tax deferral. The decision of whether or not to opt out is up to them, but make sure that they know that whatever taxes they defer will still need to be repaid in 2021 barring Congressional action.

    You’ll also want to pay close attention to any new information from the IRS or other appropriate agencies that will help clarify employers’ responsibilities. It’s difficult to navigate these types of changes, but new details will help you and your employees understand exactly where they stand with the deferral.

    While traversing these types of orders and legislative changes are tricky, you don’t have to face these questions alone. GMS can help you stay up to date with complicated payroll tax laws and other critical HR responsibilities. Contact GMS today to find out how a PEO can make your business simpler, safer, and stronger.