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Guidance on Deferral of Employee Payroll Taxes

Sandy McCluskey

August 31, 2020

On August 8, 2020, the President issued a memorandum to the Department of Treasury deferring the employee portion of Social Security tax for the period of September 1, 2020 to December 31, 2020. At the time of issuance, details of the plan were vague to nonexistent.

On Friday, August 28, 2020, the IRS issued Notice 2020-65 to provide additional information. For many, this notice created more questions than answers.

Memorandum Background:

  • Deferral includes the employee’s share of Social Security taxes, or 6.2% of compensation starting September 1, 2020 – December 31, 2020.
  • Eligible employees are those whose wages or compensation are $4,000 or less on a bi-weekly pay period, or $104,000 annually for a salaried employee.
  • Wages or compensation are calculated on a pre-tax basis to determine if the employee is eligible (e.g. gross wages should be at, or below $4,000).
  • Each pay period is independent of another. For example, if an employee earns more than $4,000 in wages or compensation in one pay period, he/she can still be eligible in a future pay period if wages or compensation are equal to, or less than $4,000.

Currently the payback period is set for January 1, 2021 – April 30, 2021. During this time, employees that had payroll taxes deferred will have 12.4% of their compensation withheld, instead of the normal 6.2% to repay deferred taxes. It is the employer’s responsibility to collect and remit the deferred payroll taxes by April 30, 2021; or interest, penalties, and additions to tax will be due.

Reporting these deferrals will be done on form 941. Revisions to form 941 are currently in process. It appears the revision will be to page 3, adding line number 24 “Deferred amount of the employee share of social security tax included on line 13b”. To view a draft of form 941, click here.

It is important to note that section 7508A of the Internal Revenue Code only allows the President to defer payment of payroll taxes, and it does not allow for forgiveness of payroll taxes. A cut or reduction of taxes requires an act of Congress.

Please reach out to your Mueller Prost specialist with any questions on these deferrals or forms.

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