Updated: Nov 17, 2020
On August 28, the IRS issued guidance that provides some explanation of how employers may defer withholding and remitting an employee’s share of Social Security tax when wages are below a certain amount. The guidance in Notice 2020-65 was issued to implement President Trump’s executive action signed in early August.
The guidance is brief, and private employers still have questions about whether, and how, to implement the deferral. The President’s action only defers Social Security taxes; it doesn’t forgive them, meaning employees will have to pay the taxes later unless Congress passes a law to eliminate the liability. Worth noting is that neither the President’s action nor the Treasury notice requires that an employer defer withholding of the employees’ payroll taxes.
Tax deferral background
On August 8, President Trump signed a Presidential Memorandum that permits the deferral of the employee portion of Social Security taxes for certain employees due to the COVID-19 pandemic.
The memorandum directed Treasury Secretary Steven Mnuchin to defer withholding, deposit and payment of an eligible employee’s share of Social Security taxes (or the employee’s share of Railroad Retirement taxes) on wages or compensation paid from September 1, 2020, through December 31, 2020. It applies to employees whose wages or compensation, payable during any biweekly pay period, generally are less than $4,000, or the equivalent amount with respect to other pay periods. Amounts can be deferred without penalties, interest or additions to the tax.
Note: Under the CARES Act, employers can already defer paying their portion of Social Security taxes through December 31, 2020. All 2020 deferred amounts are due in two equal installments — one at the end of 2021 and the other at the end of 2022.