On August 8, 2020, President Trump issued a Presidential Memorandum allowing for the deferral of federal payroll taxes for the period of September 1, 2020, through December 31, 2020. The memorandum directed the Secretary of the Treasury to use his authority to defer certain payroll tax obligations for American workers in most need during this global-wide pandemic.
On August 28th, the IRS issued the long-awaited guidance, Notice 2020-65. The guidance clarifies the scope of relief. Employers are permitted to defer the employee portion of social security taxes for employees whose wages during a bi-weekly payroll period are less than $4,000, or the equivalent amount for other payroll periods. The determination is made on a pay period-by-period basis.
An attorney from the IRS released a statement for clarification purposes saying, “employers may, but are not required, to utilize the relief.”
The guidance is clear that the taxes are not forgiven, but merely postponed until the period beginning on January 1, 2021, through April 30, 2021. The guidance notes that employers may make a plan with the employee to collect the deferred payroll tax, but it isn’t clear how, exactly, these collection efforts should proceed.
Despite the guidance clarifying some key points, many questions remain unanswered. On the whole, this permitted deferral appears to create serious logistical and legal issues for employers while offering only a nominal benefit.
If you have questions or need assistance, reach out to Gardner Skelton’s team, including tax counsel Fred Parker or employment counsel Nicole Gardner.