The Department of Treasury and Internal Revenue Service issued guidance (August 28, 2020) implementing the Presidential Memorandum issued on August 8, 2020, allowing employers to defer withholding and payment of the employee’s portion of the Social Security tax if the employee’s wages are below a certain amount.
IRS Notice 2020-65 makes relief available for employers and generally applies to wages paid starting September 1, 2020, through December 31, 2020.
The employee Social Security tax deferral may apply to payments of taxable wages to an employee that are less than $4,000 during a bi-weekly pay period, with each pay period considered separately. No deferral is available for any payment to an employee of taxable wages of $4,000 or above for a bi-weekly pay period. For those qualifying workers, the deferral applies only to the employee’s portion of Social Security taxes.
The Notice further states, “An Affected Taxpayer must withhold and pay the total Applicable Taxes that the Affected Taxpayer deferred under this notice ratably from wages and compensation paid between January 1, 2021 and April 30, 2021 or interest, penalties, and additions to tax will begin to accrue on May 1, 2021, with respect to any unpaid Applicable Taxes.” The “Affected Taxpayer” is the employer, not the employee. That’s a repayment obligation that the employer must recover from employees over the course of a few months or interest, penalties, and additions to tax will become due.
Furthermore, the Notice does not specifically contemplate employer’s inability to collect from terminated employees, other than to say, “the Affected Taxpayer may make arrangements to otherwise collect the total Applicable Taxes from the employee.” It appears that the employer is still obligated to make those deferred tax payments, regardless if the employer can collect it from the employees.
Because of the open-ended obligation to repay the taxes and of the unremedied protections for employers, we will not recommend to anyone to follow this order until Congress acts to forgive the social security tax or the US Treasury Department develops protections for employers who choose to follow this order.