On August 8, 2020, the President of the United States, Donald Trump issued a Presidential Memorandum related to payroll tax deferrals. This order establishes a Social Security tax deferral for employees who make $4,000 or less every two weeks and is effective from September 1 through the end of 2020.  This much anticipated “payroll tax holiday” seemed to be good news for the hardworking Americans who are struggling financially.  Friday evening the US Treasury and the IRS released guidance (Notice 2020-65).

Summary of Notice 2020-65

• It is an employer’s decision to opt into the program and not withhold Social Security payroll taxes from their employees’ paychecks.
• The opt-in period for payroll tax deferral is September 1, 2020 through December 31, 2020.
• The social security payroll taxes withheld from employees’ paychecks January 1, 2021 through April 30, 2021 would increase (most likely double) for those employees who opt-in.
• If an employee leaves during the deferral period, the employer can “make arrangements to otherwise collect the total applicable taxes from the employee.”
• Any deferred payroll taxes that are delinquent at April 30, 2021 will be subject to interest, penalties, and additions to tax, beginning May 1, 2021.

The Notice does not recognize employees as “Affected Taxpayers,” and it appears that the IRS did not intend to grant employees an independent right to defer withholding.  However, the employer may choose to allow each employee to opt in (or out) of the deferral.

This guidance appears to hold the employer responsible if the employee does not repay deferred taxes.  Employers that implement the deferral will need to address situations in which employees with deferred taxes terminate employment before the deferred taxes are collected (ex. termination between September 1, 2020 and April 30, 2021)

If you have any questions regarding this payroll tax deferral or other questions in this ever-changing financial landscape, please feel free to reach out to your HintonBurdick professional.