U.S. Treasury Issues Guidance on Deferring Payroll Taxes

  |   September 1, 2020

On August 8, 2020, President Trump signed an executive memorandum authorizing the Treasury Secretary to issue guidance to allow, not require, employers to participate in deferring the withholding and payment of employees’ share in Social Security taxes from September 1 through December 31, 2020. The goal is to get more money into Americans’ pockets this year. However, employees must repay the deferred amount by April 30, 2021; this will presumably double the normal withholding for the first four months of the year, reducing paychecks — but taxpayers will avoid the huge tax bill that would result otherwise.

The memorandum directs the Treasury Secretary to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the memorandum.”

However, Treasury’s guidance was delayed after it became a source of disagreement with the White House. On August 28, 2020, the Treasury and IRS released Notice 2020-65 to implement the President’s directive, which takes effect on September 1. Because of this delay, and because most employers run their payrolls well in advance of payday, few companies or payroll providers are ready to implement the stop to withholding these taxes from paychecks by September 1.

The Guidance clarifies certain aspects of the payroll tax relief, particularly its scope— for example, the relief applies only to the employee portion of social security taxes for employees whose wages during a bi-weekly payroll period are less than $4,000— and the period over which the deferred payroll taxes must be paid (taxable between January 1 and April 30, 2021). However, certain aspects of the payroll tax deferral remain unresolved.

It is unclear whether Treasury will issue additional guidance. REDW will keep you apprised as relevant developments become available. Please contact James Ortiz or Christina Roderick if you would like to discuss this matter further.


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