Payroll Tax Deferral: Updates from the IRS

On August 8, 2020, President Trump signed a Presidential Memorandum (“the Memo”) authorizing employers to defer withholding and payment of a portion of their employees’ Social Security taxes (6.2%) if wages are under a certain threshold. Last week, the IRS issued Notice 2020-65 (“the Notice”) where the Secretary of the Treasury implements such policy. Enclosed are some important highlights regarding the application of the rules set forth in the Memo and the Notice.

    • It is a deferral of the obligations that must be paid eventually. The Memo instructs the Secretary of the Treasury to try to find ways to forgive such tax liability. Note that legislation is required to achieve such objective.
    • The deferral applies to taxes payable from September 1, 2020, to December 31, 2020.
    • Any deferred taxes must be paid from January 1, 2021, until April 30, 2021. The obligation is imposed on the employer who is instructed by the Notice to: “if necessary, to make arrangements to collect the taxes from the employee”
    • The only tax that can be deferred by the Memo is the 6.2% social security portion that is withheld from the employee. The deferral does not cover:
      • The 6.2% portion for social security paid by the employer.
      • The employee portion (1.45%) or the employer portion (1.45%) of Medicare Taxes.
      • Self-Employment Tax (15.3%)
      • The deferral will only apply to employees that earn less than $4,000 per biweekly period. The determination is made on a pay-period-by-pay-period basis.

 

The Memo and the Notice fail to provide any guidance if the employer or the employees want to opt for the deferral provisions. Further, no instructions are given to make opt-in to take advantage of the provision. Note that concern has been raised about the legal validity of the orders. Please keep watching this space for updates from FPVG Pulse.