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Presidential Payroll Tax Deferral Program

On August 28, 2020, the Internal Revenue Service published Notice 2020-65 implementing the Presidential Memorandum issued on August 8, 2020 entitled “Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster.”

Notice 2020-65 provides that employers may defer the withholding and remitting from employee’s paychecks of the 6.2% Social Security tax on wages paid to employees on pay dates during the period from September 1, 2020, through December 31, 2020.  The deferral is available only with respect to employees whose bi-weekly wages are less than $4,000 (or an equivalent amount for other pay periods).  Amounts deferred must be ratably withheld and remitted from employees paychecks during the period from January 1, 2021 through April 30, 2021.  The Secretary of the Treasury has publicly stated that employers are not required to participate in the Presidential payroll tax deferral program.

Matters to note:

  • There is no official guidance requiring employers to provide employees notice of the employer’s participation or non-participation in the program.
  • There is no official guidance requiring employers to participate in the plan at the direction or desire of some or all of their affected employees.
  • There is no official guidance regarding whether an employer can impose participation in the plan on affected employees against their desires.
  • Subject to future legislation waiving the collection of the deferred taxes, the deferral program provides employees of participating employers with a four-month non-interest bearing loan.

Pro of implementing the program:

Affected employees will receive up to $248 more in their bi-weekly paycheck (or a ratable portion for wages less than $4,000 bi-weekly or wages paid on other pay periods) through December 31, 2020.

Cons of implementing the program:

  • Employers’ payroll systems will have to be updated to implement the program.
  • Employees who participated in the program will have twice as much Social Security Tax withheld from their paycheck during the period from January 1, 2021, through April 30, 2020, than those who do not. E.g., an employee earning $4,000 bi-weekly will have $596 less in their first paycheck of January 2021 (and continuing through April 2021) than their last paycheck of December 2020.
  • While employees who have terminated with their employer prior to or during the deferral payback period have the legal obligation to reimburse the employer for the deferred payroll taxes, the employer may be forced to take court action against the former employee to recover those amounts.

For more information on the matter, contact Kevin Halloran or Don Meyer in the Tax Group of Bose McKinney & Evans LLP.