Deferral of Payroll Taxes
On August 8, 2020, the President issued a memorandum directing the Secretary of the Treasury (IRS) to use the authority under IRC section 7508A to defer the withholding, deposit, and payment of the tax imposed under IRC section 3101(a) on wages or compensation paid during the period of September 1, 2020, through December 31, 2020.
The tax imposed under IRC section 3101(a) is the employee’s share of Social Security tax (6.2% FICA tax withheld from employee wages). Tax deferral does not apply to the employee’s share of the Medicare tax (1.45% FICA tax withheld from employee wages). IRC section 7508A grants authority to the IRS to delay payments or other actions in response to a disaster declaration. This is the same authority that allowed the IRS to delay the filing deadline and payment deadline from April 15, 2020 to July 15, 2020 for 2019 individual income tax returns, as well as a number of other tax filing and tax payment obligations.
The employee’s share of Social Security tax is deferred, subject to the following conditions:
a) The deferral applies to any employee wages or compensation that is payable during any bi-weekly pay period if the pre-tax amount is less than $4,000, or the equivalent amount with respect to other pay periods (employees earning less than a $104,000 annual wage).
b) Amounts deferred are not subject to any penalties, interest, additional amount, or addition to the tax.
The IRS is directed to issue guidance to implement this memorandum. The IRS is also directed to explore avenues, including legislation, to eliminate the obligation to pay the taxes that are deferred under this memorandum.
| Since the deferral applies to pay periods through December 31, 2020, the tax will have to be paid by employees or withheld from employee wages sometime during 2021, unless legislation is passed to eliminate the obligation. There are also a number of issues that will require guidance from the IRS, such as whether employers are required to defer the tax or whether employees have the option to continue to have the tax withheld. There are also questions about what happens if employers cannot recover the tax through withholding because the employee changed jobs before the end of the deferral period. |
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Author’s Comment
| The employer’s share of Social Security tax on employee wages is already being deferred under the CARES Act. For the pay period beginning on March 27, 2020 and ending before January 1, 2021, 50% of the employer’s share (6.2% FICA tax) does not have to be deposited until December 31, 2021, and the remaining 50% must be deposited by December 31, 2022. A similar provision applies for self-employed individuals and the equivalent portions for RRTA taxes. |
Inflation Adjusted Amounts for 2020
Each year, a number of provisions in the Internal Revenue Code (IRC) are adjusted for inflation.
The IRS recently released the inflation adjusted amounts for 2020.
The following chart highlights a number of these adjustments, as they compare to the 2019 and 2018 amounts.
| Tax Provision | 2020 | 2019 | 2018 |
| Standard deduction – MFJ | $24,800 | $24,400 | $24,000 |
| Standard deduction – Single | $12,400 | $12,200 | $12,000 |
| Standard deduction – HOH | $18,650 | $18,350 | $18,000 |
| Qualifying relative income limit | $4,300 | $4,200 | $4,150 |
| Maximum EIC for 3 or more qualifying children | $6,660 | $6,557 | $6,431 |
| Maximum EIC for 2 qualifying children | $5,920 | $5,828 | $5,716 |
| Maximum EIC for 1 qualifying child | $3,584 | $3,526 | $3,461 |
| Maximum EIC for no qualifying children | $538 | $529 | $519 |
| Section 179 expense limit | $1,040,000 | $1,020,000 | $1,000,000 |
| Section 179 investment limit | $2,590,000 | $2,550,000 | $2,500,000 |
| Section 179 SUV limit | $25,900 | $25,500 | $25,000 |
| Estates basic exclusion amount | $11,580,000 | $11,400,000 | $11,180,000 |
| Annual exclusion for gifts | $15,000 | $15,000 | $15,000 |
| Defined contribution plan limit | $57,000 | $56,000 | $55,000 |
| 401(k) elective deferral limit under age 50 | $19,500 | $19,000 | $18,500 |
| 401(k) elective deferral limit for age 50 + | $26,000 | $25,000 | $24,500 |
| SIMPLE elective deferral limit for <50 | $13,500 | $13,000 | $12,500 |
| SIMPLE elective deferral limit for >50 | $16,500 | $16,000 | $15,500 |
| IRA deduction limit for under age 50 | $6,000 | $6,000 | $5,500 |
| IRA deduction limit for age 50 and older | $7,000 | $7,000 | $6,500 |
| Child Tax Credit (per qualifying child) | $2,000 | $2,000 | $2,000 |
| Refundable portion of child tax credit | $1,400 | $1,400 | $1,400 |
| AMT Exemption – MFJ & QW | $113,400 | $111,700 | $109,400 |
| AMT Exemption – Single & HOH | $72,900 | $71,700 | $70,300 |
| AMT Exemption – MFS | $56,700 | $55,850 | $54,700 |
| AMT Kiddie Tax Exemption = earned income plus | $7,900 | $7,750 | $7,600 |
| Foreign Earned Income Exclusion | $107,600 | $105,900 | $103,900 |
| QBI Threshold Amount – MFJ QBI Threshold Amount – Single & HOH QBI Threshold Amount – MFS |
$326,600 $163,300 $163,300 | $321,400 $160,700 $160,725 |
$315,000 $157,500 $157,500 |
