Considering Options about Payroll Tax Deferral

The Aug. 28, 2020 release of IRS Notice 2020-65 provides guidance on the Presidential Memorandum to defer the withholding, deposit, and payment of the employee share of Social Security tax. While the deferral may be appealing to eligible employees, there are potential implications and risks for businesses. Here are some details regarding the guidance:

  • Employers are not required to offer the payroll tax deferral to employees.
  • The deferral is on the employee share (6.2%) of Social Security payroll tax.
  • The deferral period is from Sept. 1, 2020 to Dec. 31, 2020.
  • Taxes may only be deferred for employees whose applicable wages are less than $4,000 on a bi-weekly pay period (or equivalent amount in other pay frequencies).
  • The deferral is based on a pay period by pay period basis.
  • This is only a deferral; the guidance does not indicate taxes will be forgiven.
  • Employers are responsible for collecting and paying back any deferred taxes. Payments would be due between Jan. 1, 2021 and April 30, 2021. Penalties and interest on unpaid amounts begin accruing May 1, 2021.
  • Employers are responsible for paying the deferred tax for individuals who took the option, even if they no longer work for the business, whether by termination or their own decision.