Payroll Tax Deferral Information
On August 8, 2020, the President issued an Executive Order allowing for the deferral of the employee portion of the Social Security tax on wages paid between September 1, 2020, and December 31, 2020. The Executive Order called for the Secretary of the Treasury to issue further guidance with respect to administering the payroll tax deferral.
The Internal Revenue Service Issued Notice 2020-65 at the end of the day on August 28, 2020, which outlines the following:
- The deferral will apply to any employee receiving biweekly compensation of $4,000 or less, or the equivalent threshold amount with respect to other pay periods. Please note, the threshold applies each pay period and is not based on the employee's total annual compensation.
- From January 1, 2021, through April 30, 2021, the employer will ratably withhold and remit to the U.S. Treasury any payroll tax amounts that were deferred from September through December 2020.
- In essence, an employee will not pay the 6.2% Social Security tax from September to December 2020 and will pay 12.4% Social Security tax from January through April 2021.
The Secretary of the Treasury was informally quoted as saying that the payroll tax deferral was optional for employers; however, this was not memorialized in the recent IRS Notice. We do still believe that it is optional.
While the notice does not go into great detail regarding what happens if an employee leaves the Company prior to repaying all of the tax, it is our opinion that the employer is liable and must repay the tax to the U.S. Treasury.
The only way the tax can be forgiven is if further legislation is passed. The payroll tax deferral has not been politically popular in either party, and therefore, forgiveness is not guaranteed.
Our recommendation to employers is to opt-out of the payroll tax deferral.
If you have any questions, please feel free to contact us.