On August 28, 2020, the IRS, in Notice 2020-65, issued guidance on the deferral of employee payroll tax obligations as originally described in the Trump Administration’s Memoranda dated August 8, 2020.
The Notice, two-and-one-quarter pages in length, answers the following questions.
What Taxes are Deferred?
Employers may, but are not required to, defer the employee portion of tax imposed on employees’ wages imposed by section 3101(a) (6.2 percent) and an equivalent amount under section 3201 under the Railroad Retirement Tax Act. Employees may not unilaterally choose to defer taxes.
To What Wages Does Deferral Apply?
Deferral applies to applicable wages and compensation paid between September 1, 2020 to December 31, 2020. Employers may defer the employee portion of tax for employees earning less than $4,000 on a bi-weekly basis. If an employee’s wages are equal to or exceed $4,000 in a bi-weekly period, deferral is not allowed for that employee for that particular bi-weekly period. Employers must make this determination on a pay-period-by-pay-period basis. It is unclear whether an employee of an employer who chooses to defer taxes on applicable wages and compensation may opt out of such deferral.
When Must Deferred Taxes be Repaid?
An employer who deferred taxes under the Notice must withhold and pay the deferred taxes ratably from employee wages and compensation paid between January 1, 2021 and April 30, 2021. If unpaid, interest, penalties, and additions to tax will begin to accrue on May 1, 2021. The Notice allows employers to make arrangements to collect taxes from the employee if, for example, the employee is no longer employed by the employer during the repayment period. Such arrangement may include the withholding of the deferred taxes on from the employee’s final paycheck; employers who make this arrangement with their employees should have their employees sign an agreement that details this arrangement.
Will the Deferred Taxes be Forgiven?
The Notice is clear that the deferral is simply that — a deferral of taxes that must be repaid in 2021. However, “Section 4” of the Trump Administration’s Memoranda requests the Secretary of Treasury to explore avenues, including legislation, to forgive the deferred taxes.
Is Deferral of Taxes Available to Self-Employed Taxpayers?
The Notice does not address deferral for self-employed taxpayers. Accordingly, it does not appear that deferral is available to self-employed taxpayers.