Executive Order and Unemployment Compensation

Welcome to another delightful week in South-Central PA!  Today, we will be covering the President’s recent Executive Order/Memorandum, unemployment compensation issues and our usual updates and reminders.

President’s Executive Order/Memorandum

You may have seen or heard about the POTUS signing an Executive Order (EO) roughly 10 days ago.  On August 8 he signed one EO covering housing and he also issued three Memorandums.  One of the Memorandums he issued proposed deferring the withholding of the 6.2% employee Social Security tax.  Below are some of the details of the Memorandum:

  • Covers wages paid beginning Sept. 1, 2020 and ending December 31, 2020. 
  • Only covers wages paid to employees who earn less than $4,000 bi-weekly ($104,000 annual).  
  • Only DEFERS the withholding of the 6.2% SS tax and the deposit/payment of that tax by the employer.  It does not remove the requirement to eventually have the taxes withheld; however, see the next point.
  • The Memorandum directs the Treasury Secretary to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum”.

There are many unanswered questions related to the Memorandum.  Below are a few of the bigger issues:

  • What happens if an employee is paid weekly and earns less than $2,000 one week and then earns more than $2,000 the next?
  • There is confusion on the $4,000 bi-weekly limit – is that wages earned before any eligible pre-tax items are deducted or is it the amount of taxable Social Security wages?
  • The Memorandum indicates the deferral should be “available” to employees who qualify.  Does that mean employees who are eligible can elect to not participate?  If someone is earning $1,000 per week, do they have any interest in receiving an extra $62 in their net pay for the 17 paychecks they receive if they have to eventually pay back the $1,054 that wasn’t withheld?
  • The Memorandum calls for a deferral of taxes, not a cut in taxes.  That means the taxes not withheld will eventually need to be withheld, unless Congress will agree to make the tax deferral a permanent tax cut.  This seems highly unlikely, given the current climate of cooperation in Congress. 

Receiving Unemployment Compensation? Taxes being withheld?

Many taxpayers are receiving unemployment compensation for the first time.  As a reminder, unemployment compensation benefits are included in federal taxable income and taxed at ordinary income tax rates.  Each recipient will receive a Form 1099-G in January 2021 from the state that paid the unemployment benefits.

Federal income tax is not required to be withheld from unemployment compensation benefits.  In order to avoid unexpected taxes due in April 2021, taxpayers can elect to withhold income tax at a rate of 10% from each payment by completing Form W-4V and filing it with the agency making the payments.  Another option is to file quarterly estimated tax payments.    There is some good news!   Unemployment compensation benefits are not taxable for PA personal income tax or the PA local earned income tax.

Your Bertz, Hess tax professional can assist you in determining any amounts that should be paid in to avoid an underpayment penalty or to help you plan for an amount due on your 2020 tax return.  If you have any questions on unemployment compensation or its taxability in states other than PA, please contact us.

Updates and Reminders

Form 1041 (Estates and Trusts) Notices – The IRS is generating a number of notices indicating balances are owed for 2019 1041 tax returns.  The problem is that the IRS is lagging behind in processing 1041 payments, but they are timely processing tax returns, which results in the computer generating a balance due notice.  Please reach out to us if you receive one of these notices. 

September 15th Deadline – As mentioned in our previous communication, the extended due date for calendar year end partnerships and S-corporations is right around the corner.  Also, don’t forget that many third quarter estimated payments are also due on September 15th.  Please don’t hesitate to reach out to us with any questions.

Where’s my Economic Impact Payment? – Still waiting on your Economic Impact Payment?  You can click  here to check the status and payment type.

Where’s my Refund? – For those of you still waiting on your refund, don’t forget that you can check the status here.  With refunds being delayed, many taxpayers are receiving their refunds plus interest!

Your Bertz, Hess & Co. tax and business advisor will be happy to discuss any of these topics.

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