On August 28, 2020, the IRS issued Notice 2020-65 to provide guidance to employers on how to execute the President’s August 8th executive order. The IRS issued a press release accompanying the Notice. We expect more guidance to be issued on this topic and we will communicate as soon as it becomes available.
The Notice allows employers to defer the withholding and payment of the employee portion (6.2%) of the Social Security payroll tax if an employee’s wages are below $4,000 on a pre-tax, bi-weekly basis, or the equivalent amount with respect to other pay cycles.
Payroll taxes that otherwise must be withheld and remitted to the government between Sept. 1, 2020, and Dec. 31, 2020, are now due between Jan. 1, 2021, and April 30, 2021. Interest, penalties or additions to tax will accrue on any unpaid amounts starting May 1, 2021. The deferred amount depends on the actual earnings per pay period.
- Participation in the deferral program is optional. Employers can opt-in or decide not to participate.
- The determination of whether an employee is eligible is made on a pay-period-by-pay-period basis.
- No guidance is provided regarding how the employer should collect the deferred amounts from the employee.
- If employers continue to withhold payroll taxes during the Sept. 1 to Dec. 31, 2020, period, the due date for remitting those amounts is not delayed or postponed. In other words, employers cannot continue to withhold taxes and utilize the deferral.
- If an employee earns the full $4,000 every two weeks, the deferred amount is $248 per pay period.
Please consult your payroll company, employee manual, and your HR consultant to come up with the best plan for your company. We urge employers to review the provisions carefully before deciding whether to enact this program.
- The guidance appears to leave employers responsible for collecting the taxes from employees in 2021.
- It is implied that employers must recoup deferred liabilities from those employees who have departed prior to or during the collection period. Employers may be subject to collection risk if an employee leaves the job before the deferred amount is repaid.
- The notice offers no direction as to how this should be done.
- It is apparently up to the employer to determine how soon to collect the deferred payroll taxes in 2021 so long as they are collected and remitted by April 30, 2021.
- The notice does not address whether individual employees can opt out of the program.
By Carrie Karn