IRS Issues Guidance to Implement Deferral of Certain Employee Social Security Tax Withholding

IRS Issues Guidance to Implement Deferral of Certain Employee Social Security Tax Withholding

We continue to provide updates on our breaking news email from last week regarding the IRS Notice 2020-65 that included some guidance for implementing the August 8th Presidential Memorandum. For applicable wages, the Memorandum directs the Treasury Department to postpone the due date for employers to withhold, collect, and remit payment of the employee’s portion of the Social Security tax. Taxes deferred under this program must be repaid by the employer either through reductions in employee wages between January and April 2021 or other necessary means (undefined).

Most employers are asking whether they are required to defer the withholding. The Notice does not explicitly answer this question. Presumably since nothing in the Notice requires the employer to defer withholding, an employer could elect to just continue withholding all taxes for all of its employees. However, what is clear is that the risk of repayment is that of the employer, as the employer will incur penalties and interest on non-payment of the deferred taxes effective May 1, 2021.

The Notice also did not specify whether employers can allow employees to opt-in or out of the program should the employer choose to participate. Another major unknown at this time is how payroll service providers and payroll systems may need to adjust to implement the deferral program.

Employers will undoubtedly feel some pressure to participate and may need to consider how to communicate the deferral and subsequent collection of these taxes to employees.

We highly advise that you contact your payroll service provider as soon as possible as applicable wages include “pay dates” between September 1 and December 31, 2020.

The full Notice can be found here.