Tax Alert: IRS Guidance for Employers President’s Executive Order on Payroll Tax Deferral

On August 28, the IRS and Treasury published Notice 2020-65, which provided guidance for employers on President Trump’s executive order on payroll tax deferral. Below, we’ve developed an executive summary of the items that matter most to businesses:
  1. The due date for the withholding and deposit of employee FICA old-age, survivors and disability insurance taxes (6.2%) on wages paid beginning September 1 and ending on December 31 is postponed until early 2021.
  2. Only FICA taxes on wages below $104,000 annually (or $4,000 per bi-weekly pay period or equivalent for other pay periods) are eligible for the deferral. No pro-rata deferral is permitted if wages are above the threshold.
  3. The wage threshold is determined on each pay period irrespective of any other pay period.
  4. Deferred taxes must be collected ratably by the employer beginning on January 1 through April 30, 2021, and deposited accordingly.
  5. Only the time for withholding the taxes has changed pursuant to the Notice, not the deposit timing rules. However, the deposit timing rules only take effect once the taxes have been withheld.
Our Takeaway
It is not clear from the published guidance whether this is optional on the part of employers, or whether employees can compel their employer to defer the tax. Similarly unclear is what would happen if an employee terminated before the tax was withheld. We hope the Treasury or IRS will clarify soon. We’ll continue to monitor Treasury and IRS guidance, and we will provide updates as we receive them.
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