New IRS Guidance Allows, But Does Not Force, Employers to Postpone Withholding Payroll Taxes

In early August, President Trump signed an executive order declaring a payroll tax holiday. On Friday last week, the Internal Revenue Service issued guidance to address some of the logistical issues related to deferring payroll taxes.

Per IRS Notice 2020-65, employers may opt out of withholding social security taxes for their employees who earn less than $4,000 bi-weekly between September 1 and December 31, 2020. This holiday relates only to the employee share of the social security taxes which is calculated at 6.2% of their wages. The deferred payroll taxes must be paid back between January 1 and April 30, 2021. Full withholding is still required for employees earning $4,000 or more biweekly.

The guidance did not clarify who would be responsible for repaying the deferred social security taxes – the employer or the employee – if the employee quits or is let go before April 30, 2021. The guidance says companies can make arrangements to collect the delayed payroll tax payments from the employee, but most experts warn that  employers will ultimately be responsible for repaying the taxes if the employee is unable or unwilling to pay. It is also unclear if employees have a say in whether their employers defer collecting the payroll tax through the end of this year.

The President’s order also directed the Treasury Department to look into ways to eliminate the obligation to repay the deferred taxes. Eliminating a tax requires an act of Congress, which would clearly be a challenge given the current political environment.  

Businesses will need to carefully consider their unique operations as well as the risks and benefits of delaying the collection of the social security  taxes on behalf of their employees. WBL is here to help. Contact your WBL tax expert to discuss your situation today.