President Trump issued a presidential memorandum on August 8, 2020 directing the United States Secretary of the Treasury to authorize the deferral of the withholding, deposit and payment of the employee’s share of the social security tax (6.2%) and the employee’s share of the RRTA equivalent tax, on applicable wages and compensation paid from September 1, 2020 through December 31, 2020. This deferral applies to employees whose biweekly pay is less than $4,000 or a prorated equivalent amount where a different pay period applies.
Applicable wages exclude amounts of qualified sick leave or family leave wages under the Families First Coronavirus Response Act (FFCRA), allocable qualified health plan expenses, and creditable portion of allocable health plan expenses included within qualified wages that are subject to an employee retention credit available under the CARES Act.
On August 28, 2020, the Treasury and the Internal Revenue Service (IRS) issued Notice 2020-65 in order to provide needed guidance for the implementation of the payroll tax deferral and to outline the procedures and requirements for the employers.
According to this notice, employers must withhold and pay back the deferred taxes starting on January 1, 2021 and ending on April 30, 2021. Interest, penalties and additions to tax will begin on May 1, 2021 on any unpaid portion of the deferred taxes.
The IRS guidance in this notice did not address whether this deferral was elective or mandatory or whether employees had the right to opt out.
During a monthly payroll industry teleconference on September 3rd, the IRS confirmed that the payroll tax deferral is optional. Employers may, but are not required, to implement the deferral. Employers, not employees, have the controlling choice whether to implement the payroll tax deferral and employees do not have an option to opt out if the employer chooses to implement the deferral.
Based on information stated by a senior administration official, federal employees will have their payroll taxes deferred through the end of 2020.
Employers who decide to implement this deferral need to have clear communication with its employees as to the fact that the deferral is temporary and it will be paid back beginning on January 1, 2021. The employees’ paychecks will be less by the prorated amount of tax withholdings applicable to this deferral during the first four months of 2021.
Additional information can be found at www.IRS.gov.
Contact your Legacy Professionals LLP representative with any questions.
Legacy News Flash 20-15