Friday, August 28th, the IRS issued its official guidance on the 2020 payroll tax relief which President Trump signed on August 8 in his Presidential Memorandum. According to IRS Notice 2020-65, the Secretary of the Treasury has postponed the withholding and payment until the period beginning on January 1, 2021, and ending on April 30, 2021, for “employers that are required to withhold and pay the employee share of social security tax under section 3102(a) or the railroad retirement tax-equivalent under section 3202(a) are affected by the COVID-19 emergency for purposes of the relief described in the Presidential Memorandum and this notice”.
Which payroll taxes may be deferred?
Employers are allowed to defer the withholding, deposit, and payment of the employee’s portion of Social Security tax on wages paid from September 1, 2020 through December 31, 2020.
Who is eligible for payroll tax deferral?
Any employee who earns pre-tax wages of less than $4,000 for a bi-weekly pay period or the equivalent threshold amount with respect to other pay periods is eligible for the deferment of their Social Security tax. The employer must make this determination on a pay period-by-pay period basis.
Is this optional for employers? Employees?
The choice to defer withholding, deposit, and payment of the Social Security taxes is optional for any employer. If an employer decides to offer the payroll tax deferral relief, then its employee(s) have the right to decline by opting-out from this relief program. Employees that opt-out from the payroll tax deferral should continue to have the regular Social Security tax withheld and paid to the IRS in a timely manner.
What is the due date for the deferred withholding and payment of the payroll tax?
Employers may (but are not obligated to) stop withholding of the employee’s portion of Social Security tax from September 1, 2020 through December 31, 2020, but employers must withhold and pay the total deferred tax ratably from wages paid on January 1, 2021, through April 30, 2021. Interest, penalties, and additions to tax will begin to accrue on May 1, 2021, with respect to any unpaid tax.
If Corporate Payroll Services is processing your payroll and making your tax payments for both the deferral period and the payment period, we will make these payments for you. Any employee who has left employment and has a balance due will have that balance debited from the company/employer’s account. It will be your responsibility to collect that amount due from your employee.
This is a deferral of the payroll tax and not an exemption from payroll tax. The due date for deferred employee Social Security taxes is postponed until the tax period beginning on January 1, 2021, and ending on April 30, 2021. Until the IRS releases additional guidance, the current guidance implies the employer will still be obligated to eventually withhold and pay over to the IRS the deferred taxes from all employees regardless of their employment status in 2021. The employer must make other arrangements to collect the total deferred taxes from the employee if the employee is no longer employed.