Placement: Consent Agenda
Action Requested: Motion / Vote
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Approve Opting Out of the Social Security Payroll Tax Obligation Deferral Option.
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Submitted By: Jeff Snyder, CFO, Financial Management Department
Strategic Plan Link: The City’s Mission to be financially responsible.
Executive Summary (General Business): Per IRS Notice 2020-65 (Attachment B,) on August 8, 2020, the President of the United States directed the Secretary of Treasury to allow the deferral of the withholding, deposit, and payment of employees’ social security tax contributions. This is a voluntary program to be decided upon by each employer.
Presentation Information: N/A
Staff Recommendation: Move that the Council approve opting out of the payroll tax obligation deferral.
Alternate Recommendations:
1. Move that the Council amend the recommendation and approve opting out of the payroll tax obligation deferral.
2. Move that the Council provide staff direction.
Background: The Secretary of the Treasury directed the possibility of deferring withholding, deposit, and payment of tax imposed by 26 U.S.C. 3101(a), and so much of the tax imposed by 26 U.S.C. 3201 as is attributable to the rate in effect under 26 U.S.C. 3101(a), on wages or compensation, as applicable, paid during the period of September 1, 2020 through December 31, 2020 subject to the conditions listed on Attachment A.
Issues/Analysis: Ultimately, the City (employer) would be responsible for repaying the employee’s deferred contributions. The employee will owe the deferred tax, but it will be on the City to collect it. If the City is unable to collect the deferred tax, then the City becomes responsible to pay the amount owed by the employee.
Financial Information: This deferral would only be applied to wages paid between Sept 1, 2020 and December 31, 2020. Note that this deferral only applies to employees making less than $4,000 on a biweekly pay period; or $104,000 annually. This would result in a very tedious and manual process from our payroll department. The payroll department would have to calculate a rate for every employee and delete that tax from the paycheck each pay period; the City’s portion would still need to be paid as usual. This will continually need to be done each pay period as there may be adjustments (ex. pay raise 10/1 and first full pay period in December.) This would also need to be tracked by someone, as it would need to be collected back from the employees and paid between January 1, 2021 and April 30, 2021. In order to collect the money from employees, the payroll department would need to once again make manual adjustments in each employee’s paycheck one by one, each pay period. If the amount remained unpaid, then interest, penalties, and additions to the tax will begin to accrue on May 1, 2021.
Special Consideration: N/A
Location of Project: N/A
Attachments:
A. Presidential Documents
B. IRS Notice 2020-65: Part III - Administrative, Procedural, and Miscellaneous
C. UNC School of Government Article
NOTE: All of the listed items in the “Attachment” section above are in the custody of the City Clerk. Any item(s) not provided in City Council packets are available upon request from the City Clerk.
Internal Reference Number: N/A
Legal Sufficiency Review:
N/A