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Employee Payroll Tax Deferral

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September 18th, 2020

Posted in IRS & Tax Information

On August 8, 2020, the President issued a Memorandum entitled Deferring Payroll Tax Obligation in light of the Ongoing COVID-19 Disaster. The Memorandum authorizes the Secretary of the Treasury to defer certain payroll tax obligations. The purpose of the Memorandum is to produce a targeted action that “will put money directly in the pockets of American workers and generate additional incentives for work and employment.”

Pursuant to IRS Notice 2020-65, employers can elect to defer taxes in the amount of 6.2%, otherwise known as Social Security taxes for the period of September 1, 2020 through December 31, 2020.  Social Security employment taxes are taxes paid directly to the Internal Revenue Service (IRS) by the employer. The deferral may be available with respect to any employee whose wages or compensation payable during any bi-weekly pay period is less than $4,000.00, calculated on a pre-tax basis, or the equivalent amount with respect to other pay periods. This equates to an approximate $104,000-a-year salary. Deferred amounts are deferred without any penalties, interest, or addition to the tax. Employers can elect to defer these taxes, which means they will need to be paid back in the future. However, the Memorandum directs the Secretary of the Treasury to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred, pursuant to the implementation of this Memorandum.”

Furthermore, IRS Notice 2020-65 provides that collection is postponed until the period beginning January 1, 2021 and ending April 30, 2021. What does this mean for the employer? The employer is the one typically charged with withholding and depositing this tax. It appears to be optional for private sector employers, but is it? Will there be a future tax forgiveness? Right now, there are still a lot of open questions.

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