COVID-19 AID TO EMPLOYEES: Payroll Tax Deferral

On August 28, 2020, the Internal Revenue Service released Notice No. 2020-65 “Relief with Respect to Employment Tax Deadlines Applicable to Employers Affected by the Ongoing Coronavirus (COVID-19) Disease 2019 Pandemic” (the “Notice”) which provides further guidance on the “Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster” issued by President Donald J. Trump (the “Executive Order”).

An employer may choose to suspend the withholding and payment of the employee portion of Social Security payroll taxes for the period from September 1, 2020 to December 31, 2020 (the “Payroll Taxes”), but not the employer's portion.

Employers may only defer Payroll Taxes for employees who make less than $4,000 on a bi-weekly basis, or the equivalent threshold amount with respect to other pay periods. The tax deferral applies to the pre-tax wages earned by an employee during any bi-weekly pay period from September 1 to December 31, 2020. However, the eligibility determination is based on each pay period. That is, if an employee makes less than $4,000 during one bi-weekly pay period from September 1 to December 31, 2020, that employee would be eligible for a tax deferral for that pay period, even though the employee makes more than $4,000 during other pay periods.

The Notice provides that an employer must withhold and pay the deferred Payroll Taxes “ratably from wages and compensation paid between January 1, 2021 and April 30, 2021” or interest, penalties, and additions to tax will apply. The Notice further provides that an employer, in its efforts to collect the deferred taxes from employees, may make arrangements to otherwise collect the deferred taxes from the employees, other than by withholding the deferred amounts from its employee’s paychecks. It is unclear whether the employers will be liable for the deferred taxes if they are unable to collect the deferred amounts from employees in 2021.

The Executive Order and the Notice do not address whether employers must honor requests by employees to have their payroll taxes deferred if the employer chooses not to defer the payroll taxes or whether these deferred taxes will need to be repaid by employees in the future if not otherwise paid by the employer.

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E-Alert is a newsletter that features the latest thinking from Tannenbaum Helpern's various departments.

09.01.2020  |  PUBLICATION: E-Alert  |  TOPICS: Tax

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