Employee Payroll Tax Deferral Guidance

Sep 2, 2020 | COVID-19

Employee Payroll Tax Deferral Guidance

On August 8, 2020, President Trump signed an executive order allowing employers to defer the withholding and payment of the employee share of Social Security taxes from September 1 through December 31, 2020. As the executive order left many unanswered questions, the IRS later released a notice on August 28, 2020 to answer some of the many questions that remain.

What We Know

  • We believe employers have a choice to apply these provisions or “opt out”. Treasury Secretary Mnuchin has previously indicated to the press that employers would not be required to offer the deferral.
  • The payroll tax deferral applies to pay dates between September 1, 2020 and December 31, 2020.
  • The payroll tax deferral does not apply to all employees; rather, only those employees earning less than $4,000 for a bi-weekly payroll period. Eligibility is determined on a pay period-by-period basis.
  • Employers who adopt the deferral provision would later need to “double up” on withholding the employee’s share of Social Security (i.e., withhold 12.4% from January 1 to April 30, 2021 instead of the normal 6.2% of wages up to the OASDI annual wage base) Employers will need to inform employees of their responsibility to withhold “double tax” in 2021!
  • Neither the executive order, nor the IRS Notice eliminates or forgives the tax liability. The executive order simply indicates the “Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.”

Open Issues and Unanswered Questions

  • Administratively, it will be a challenge to adapt payroll systems to handle these changes in such a short amount of time.
  • Can an employer allow specific employees to “opt in” or “opt out”?
  • What recourse do employers have if the employees would leave or be terminated before all payroll taxes have been withheld? Presumably, employers would be responsible for paying the balance due.
  • What if an employer elects to not defer payroll taxes, but such taxes are later forgiven through an act of Congress?

Let Us Help

Our professionals remain up-to-date with these frequently changing government incentives and aid programs. If you are uncertain about or need further guidance, please call our office.

Helpful Links.

Your Return Is Filed! 3 Things to Keep in Mind Post-Filing

Your Return Is Filed! 3 Things to Keep in Mind Post-Filing

Most people feel some relief after filing their income tax returns each year. But even if you've successfully filed your 2024 return, you may still have questions. Here are three common ones. 1. What's the Status of Your Refund? You can learn the status of your tax...

Traveling With Your Spouse on Business? Know What’s Deductible

Traveling With Your Spouse on Business? Know What’s Deductible

If you own a company and travel for business, you may wonder whether you can deduct all the costs of having your spouse accompany you on trips. It’s possible, but the rules are restrictive. When Your Spouse Is Also Your Employee If your spouse is your employee, you...

Helping a Family Member Buy a Home

Helping a Family Member Buy a Home

Making a family loan isn’t the only way to assist a loved one with purchasing a home. If you aren’t concerned about being paid back, a straightforward option is gifting cash. In 2025, you can give up to $19,000 to anyone without federal gift tax consequences under the...