IRS provides guidance on executive order deferring payroll tax obligations

On August 8, 2020, President Trump issued an executive order to defer withholding, deposit and payment of the employee portion of Social Security taxes on wages paid between September 1, 2020 and December 31, 2020. In addition, the executive order instructed the Secretary of the Treasury to explore eliminating the obligation for the deferred taxes. Subsequently, on August 28, the Treasury Department and Internal Revenue Service released guidance in Notice 2020-65, which implements the President’s executive order relating to the deferral of payroll taxes.

The deferral is available to any employee whose Applicable Wages[1] paid during any biweekly pay period are less than $4,000 or the equivalent with respect to other pay periods.  The determination of Applicable Wages is made on a pay period-by-pay period basis.  If the amount of wages or compensation payable to an employee for a pay period is less than the corresponding pay period threshold amount, then that amount is considered Applicable Wages for the pay period, and the relief provided in Notice 2020-65 applies to those wages or compensation paid to that employee for that pay period, irrespective of the amount of wages or compensation paid to the employee for other pay periods.

Employers that are required to withhold and pay the employee share of Social Security Tax or Railroad Retirement Tax are considered “Affected Taxpayers” under Notice 2020-65. An Affected Taxpayer must withhold and pay the total taxes deferred under the executive order and Notice 2020-65 ratably from wages and compensation paid between January 1, 2021 and April 30, 2021 or interest, penalties, and additions to tax will begin to accrue on May 1, 2021, with respect to any unpaid deferred tax.

Mazars’ Insight

Several items must be considered before implementing the executive order:

  • What happens if taxes are deferred and the employee is no longer employed between January 1, 2021 and April 30, 2021? Arrangements need to be made to ensure that the employer can obtain the deferred taxes from the employee.
  • Do the employers need employee approval to defer the taxes? Should an affirmative election be obtained from the employee?
  • How is the amount deferred and eventually deposited? It is anticipated that Form 941 will be modified.
  • Payroll reporting systems will need to be modified to track the amount deferred.

Please contact your Mazars USA LLP professional for additional information.

[1] Notice 2020-65 defines applicable wages as “wages as defined in section 3121(a) or compensation as defined in section 3231(e)”

Published on September 3, 2020

The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.