Club Tax Expert Explains New IRS Guidance on Employee Social Security Payroll Tax Holiday

Written by: Brad Steele, J.D.

Attention, clubs: on August 8, the United States President issued an executive order deferring a portion of your employees’ payroll taxes. This payroll tax holiday runs from September 1 to December 31, and only employees making less than $104,000 per year qualify. In that same executive order, the President directed the U.S. Treasury Department to issue guidance on how this deferral is to work.

Pursuant to the IRS’ guidelines, the club is to repay this tax by withholding funds from its employees’ wages beginning January 1, 2021 and ending April 30, 2021. If the club does not withhold those funds, then it will be responsible for interest, penalties and additional taxes beginning May 1. Thus, the onus is on the club (and not the employee) to see that this tax is repaid. Thankfully, the club does have the right to “make arrangements” to collect the tax from its employee, if necessary.

To say the least, this guidance raises more questions than it answers — especially as it relates to those employees who receive the benefit and are no longer at the club on January 1, 2021. Of course, the biggest problem for employees is that the club must repay this tax by basically doubling their payroll taxes — right after the holidays.

In response to numerous inquiries into the ability of employers or employees to opt-in or opt-out of the President’s payroll tax holiday, the IRS has now clarified that employers, and only employers, may opt-in or out.

With this information, the potential legal liability for clubs that opt-out of this deferral has been removed. Club leaders may now confidently decline to implement the payroll tax holiday. This would be the preferred course of action to minimize liability for any tax debt arising from employees who were at the club during the deferral period, but leave before or during the repayment period.

This announcement came from IRS counsel in a press conference last week. Thankfully, this means that clubs will not need to be proactive in creating protections to ensure they are not responsible for this tax debt and potential claims from employees.

A review of the clarification can be found here. Should a club decided to opt-in to this program, there are still some legal issues to resolve. Specifically, the new IRS Guidance places responsibility for payment of this deferred tax squarely on the club. However, it does allow the club to “make arrangements” to collect the tax from its employee. As such, a club deciding to opt-in to the program should have their employees sign a promissory note before implementing the deferral. Of course, actually collecting that debt may be difficult even with a promissory note. Therefore, it is advisable for clubs to simply opt-out of the program altogether.

This repayment issue and other attendant legal concerns have been floating around this program for nearly a month. Now, club leaders should feel more secure in moving on from this payroll tax deferment problem. Of course, stay tuned — things can always change quickly!

This blog post was updated on Tuesday, September 8, 2020 to reflect the latest IRS guidance on the Employee Social Security Payroll Tax Holiday executive order as it impacts clubs in the United States.

Revisit Brad Steele’s Recent HFTP Webinar, “Washington’s Responses to COVID-19: How Do They Impact My Club?”

With Congress’ previous responses to the pandemic in full force and additional executive orders being implemented shortly, club leaders have been overwhelmed with new requirements and benefits coming from Washington. Unfortunately, many of these legislative and executive initiatives have been enacted with little or no guidance – causing more questions than answers.

Last week, Brad led an interactive webinar that provided clarity and guidance on how to ensure your club is in compliance with the law. The webinar will help you understand how to implement the recently released executive orders (including the payroll tax holiday), and help you get the most from what the government has to offer – allowing you to better assist your employees and members while protecting the financial health of your club. Visit the HFTP Archived Webinars Library to watch his session.

Brad Steele, J.D. has 15 years of experience in the private club industry and is founder of Private Club Consultants (PCC), which provides in-depth legal and operational answers for private clubs in America.

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