Payroll Tax Withholding

Take-Away: The IRS published Notice 2020-65 on August 28 that describe the employee’s payroll employment tax deferral for the balance of 2020. This provides a short ‘holiday’ from that withholding payroll tax. Perhaps equally important is that the employee’s share of the payroll tax that is deferred through the balance of 2020 will have to all be repaid, starting on January 1, 2021, by April 30, 2021.

Background: On August 8, 2020 President Trump invoked his authority under IRC 7508A to direct the Department of Treasury to defer the withholding, deposit, and payment of certain payroll tax obligations. Thus, Treasury has determined that employers that are required to withhold and pay the employee’s share of the social security tax under IRC 3102(a) that are affected by the COVID-19 emergency, are entitled to this ‘relief.’

• Applicable Wages: For purposes of this payroll tax deferral, Applicable Wages are defined a wages or compensation paid to an employee during the period from September 1, 2020 and ending on December 31, 2020, but only if the amount of such wages or compensation paid to the employee for a bi-weekly pay period is less than the threshold amount of $4,000.
• Pay Period-by-Pay-Period Determination: This determination of Applicable Wages is determined on a pay period-by-period basis.
• Payroll Tax Deferral: If the amount of wages or compensation payable to an employee for a pay period is less than the corresponding pay period amount of $4,000, then that amount is considered Applicable Wages for the pay period and the payroll tax relief provided in this Notice applies to those wages or compensation paid to that employee for that pay period, despite what other amount of wages or compensation were paid to that employee for other pay periods.
• Payback: The employee’s share of the payroll taxes deferred must be repaid in full by April 30, 2021, or the employer will then have to pay interest, penalties and other additions to the tax.

Conclusion: A four month respite from the payment of the employee’s share of the social security payroll tax does not sound like it is going to provide all that much financial relief to beleaguered employees, if they also understand that the postponed payroll tax must be fully repaid (i.e. doubled) in January through April 2021. I would be more concerned about helping those in our country who are without a paycheck to begin with (but that is just my cynical view of the wisdom of this ‘emergency’ relief initiative from the President.)