Voluntary federal payroll tax deferral: Are credit unions participating?

A voluntary federal payroll tax “holiday” went into effect at the beginning of the month, but it remains to be seen how many New York state employers, including credit unions, are participating.

“I’m not aware of any credit unions that have opted in as of now. Most credit unions I’ve spoken to have indicated their employees are not supportive of the program since it’s a tax forbearance, not forgiveness,” said Christopher Pajak, the New York Credit Union Association’s director of member relations and HR consultant.

A presidential memorandum issued on Aug. 8 allows employers to defer withholding and payment of an employee’s portion of the Social Security tax between September 1 and December 31, 2020 if the employee’s wages are below a certain amount.

The memorandum indicates that deferred taxes must be repaid, but it is currently unclear if the federal government will take any action to forgive future repayment of employees’ deferred Social Security taxes, although at least one bill has been proposed related to the payroll tax. Texas Republican Rep. Kevin Brady late last week introduced the Support for the Workers, Families and Social Security Act, which he says would reduce the 6.2% FICA taxes to zero through the end of the year for all employees.

Regarding guidance on the memorandum issued by the Department of Treasury and IRS on Aug. 28, the temporary Social Security tax deferral may apply to payments of taxable wages to an employee that are less than $4,000 during a bi-weekly pay period, with each pay period considered separately. No deferral is available for any payment to an employee of taxable wages of $4,000 or above for a bi-weekly pay period, according to the guidance.

The guidance does not indicate that employers must participate, and many credit unions, in fact, are not.

“I decided not to participate due to the fact this program appears to be of the ‘kick the can’ type — save now, but be prepared to pay later, said Cheryl Scott, Kenmore Teachers FCU CEO. “Unless something unforeseen happens to remove the obligation, the staff is required to repay the missing funds from future paychecks while also contributing the FICA owed during each of those future pay periods. Should something happen to prevent them from repaying, I understand that the obligation falls back to the employer to make up the shortage, and I want neither party to have that burden.”

Rebecca Smith, Clarence Community & Schools FCU CEO, agreed, saying that one of the things that struck her from an employer perspective is what happens if an employee participates, and then leaves the company before they have paid back the taxes. 

“It is then the employer’s responsibility to make arrangements with the former employee to pay back the deferred funds, and I think this presents the possibility that we would not be able to recoup those funds fully,” Smith said. “In addition, the recordkeeping for the whole process seems like it could become a little overwhelming for a small credit union like ours.”

In making the decision whether to participate, Smith explained she involved staff in a conversation about opting in or opting out, and employees overwhelmingly said “no way” to participating.

“From their perspective, being employed in an ‘essential business,’ has meant they have not sustained a substantial income loss during the pandemic. Everyone was still working, whether it was in the office or remotely from home,” Smith said. “As an employer, we chose to provide one paid day off per week to each staff member for them to be able to decompress and take care of their own mental health. Overall they may have lost a couple hours per week, but they do not feel that the pandemic has put them behind financially, resulting in them needing the extra payroll tax money.”   

Click here to access the Department of Treasury and IRS guidance.

 

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