By Pat Butler
On August 8, 2020, President Trump signed an executive memorandum directing the U.S. Department of the Treasury to defer certain payroll tax obligations amid the ongoing COVID-19 pandemic.
On August 28, 2020, the IRS published Notice 2020-65 (Notice) allowing employers to defer withholding the employee portion of Social Security tax from paychecks. This payroll tax deferral is different from the one provided for under the Coronavirus Aid, Relief and Economic Security Act.
The Notice is directed at employers, which are termed “Affected Taxpayers” in the Notice. The Notice concerns the withholding and payment of “Applicable Wages,” which is defined to mean wages and compensation paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020; however, this is limited to wages or compensation paid for a bi-weekly period that is less than $4,000. Furthermore, that determination is made in each pay period; therefore, it is possible for an employee’s wages or compensation to meet this requirement in some pay periods but not others. In other words, failure to satisfy this requirement does not mean the employee is barred from this deferral for all or subsequent pay periods.
The Department of Treasury and Internal Revenue Service Guidance
Deferral under the Notice is optional. Any tax deferred under the Notice is required to be collected and paid between January 1, 2021, and April 30, 2021. Employers that fail to pay any outstanding amounts by May 1, 2021, may be held liable for the tax, penalties, and interest. The Notice indicates the Affected Taxpayer may “make arrangements to otherwise collect” the deferred taxes from the employee.
The Notice leaves many unanswered questions, such as whether an Affected Taxpayer must make this available if a particular employee qualifies, and what an Affected Taxpayer might do in the event an employee is no longer employed by the Affected Taxpayer before the deferred taxes are remitted to the government. R+R will be monitoring any additional developments concerning this payroll tax deferral and will share further information as additional guidance is released. For questions, please reach out to your R+R Tax Advisor or complete the Contact Us form.
REYNOLDS & ROWELLA | ACCOUNTING AND CONSULTING
Reynolds + Rowella is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.
The firm has offices at 90 Grove St., Ridgefield, CT and 51 Locust Ave., New Canaan, CT
For more information, give us a call at 203.438.0161 or email us.
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