Payroll tax changes
Numerous state agencies/departments have announced the availability of extensions for various tax filings and payments, waivers of interest and penalties, withholding exemptions, and employer tax credits.
Aimed at preventing the spread of COVID-19, many employees, voluntarily or under an emergency order, have moved to work from home who did not previously do so. As a result, employers are questioning how to address income tax withholding for employees who may now have different work and resident taxing jurisdictions. Some states and localities are issuing guidance on how to handle this scenario, while others are leaving it to employers to make a determination.
Employers should also note that The Coronavirus Aid, Relief, and Economic Security (CARES) Act permits them to delay payment of the 6.2% employer portion of the Old-Age, Survivors, and Disability Insurance (OASDI) payroll tax incurred between March 27, 2020, and December 31, 2020. Under the Act, 50% of the tax payment is due by December 31, 2021, and the remaining 50% of the tax payment is due by December 31, 2022.
The CARES Act also provides a 50% refundable payroll tax credit of up to $10,000 in qualified wages (and health benefits) per employee for certain employers that keep employees on the payroll during certain periods. There are additional conditions and agency guidance is expected, but in general, the credit is available to employers with:
Operations that were fully or partially suspended due to a COVID-19-related shut-down order; or
Gross receipts that declined by more than 50% when compared to the same quarter in the prior year. Notably, this provision uses the Affordable Care Act definition of “full-time employee” to determine an employer’s size and category for reimbursement, but agency guidance is expected related to the details of the calculation.