IRS and Treasury Publish Guidance on Payroll Tax Deferral Executive Order

August 28, the Department of Treasury and Internal Revenue Service (IRS) issued guidance implementing the Presidential Memorandum issued on August 8, 2020, allowing employers to defer withholding and payment of the employee’s portion of the Social Security tax if the employee’s pretax wages or compensation during any biweekly pay period generally is less than $4,000.

Notice 2020-65,  allows employers to defer withholding on affected employees’ compensation during the last four months of 2020 and then withhold those deferred amounts during the first four months of 2021.  Under the guidance, employers can defer the withholding, deposit, and payment of certain payroll taxes on wages paid from Sept. 1 through Dec. 31, 2020. The deferral applies to the employee portion of the payroll taxes.. The due date for withholding and payment of these taxes is postponed until the period beginning Jan. 1, 2021, and ending April 30, 2021. 

Of note, the U.S. Chamber of Commerce expressed concerns regarding uncertainty created by this executive order for employees in an August 18 coalition letter to leaders in Congress and the Administration. In the letter, the group says that “Under current law, the EO creates a substantial tax liability for employees at the end of the deferral period. Without Congressional action to forgive this liability, it threatens to impose serious hardships on employees who will face a large tax bill as a result of deferral.”

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