September 3, 2020

We are starting to get a few questions about the payroll tax deferral that became possible on Sept. 1.

There is very little guidance from the federal government on this deferral. Hopefully there will be more soon, but here is what we know:

  • As of right now, this is a deferral rather than a tax cut. We believe an act of Congress would be required to make it permanent, and we think that is unlikely.
  • The concept may be intriguing to employees, but the devil is always in the details. We know no details yet. 
  • Unless this is made permanent, the deferred taxes would have to be paid in the first quarter of 2021, meaning employees would have double their usual rate taken out of their paychecks. While deferring the tax right now might be beneficial, we believe it’s likely that employees could blame the employer when the double tax is taken out beginning in January.
  • If an employee leaves the company during the deferral, the company may be on the hook to pay the former employee’s deferred taxes in January. 
  • In checking around with CSA members, we believe the vast majority (perhaps all) of our members will choose not to participate in this program.
Communicating your decision to employees may be challenging because of the complexity of the issue. We encourage you to keep the communication short and clear. Feel free to use this sample language:

"XYZ Lumber is aware that the federal government is allowing companies to stop withholding payroll tax as of Sept. 1. However, the government has not given us complete details on this program. Without knowing exactly how the program works, we are not comfortable putting it in place. Further, the program only allows us to defer the tax. Employees would have to repay all this tax starting in January. We are not comfortable taking out twice your regular tax rate next year. For these reasons, we are going to continue withholding tax at the normal rate. If the government provides more information or the rules change, we may reconsider this decision."

We will continue to keep you informed as more guidance is released on this issue.

Have a great weekend,

Jim Moody, President
Construction Suppliers Association
(678) 674-1860
[email protected]