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Payroll tax deferrals under the new executive order and under the Cares Act

Updated: Dec 29, 2020

What’s the difference and should you utilize it?

Under the Cares Act, an employer is allowed to defer payment of the employer portion of social security tax, for the amounts accrued 3/27/2020-12/31/2020, and is only be liable to pay half by 12/31/2021 and half by 12/31/2022.

For illustration purposes a company that pays $1,000,000 in wages subject to social security taxes in the period 3/27/2020-12/31/2020, can instead of paying 62k in employer social security taxes, “borrow” the money interest and penalty free, for 1-2 years.

Under the new executive order, a company can defer collecting and paying the employee portion of payroll taxes, for employees that earn less then 4K bi-weekly, for the period 9/01/2020-12/31/2020 and pay it by May 1st 2021.

The cares act deferral is essentially a free 1-2 year loan to the employer, while the executive act is a 4 month loan to the employee.

My view would be, that if an employer can use the extra money, there is no reason why they shouldn’t utilize the payroll deferral under the cares act.

However I don’t see the advantage of deferring an employees tax, and giving them a higher take home pay, at the expense of reducing their take home pay next quarter.

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