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Guidance Provided on Payroll Tax Deferral

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Tax Advisory: U.S. Federal

Late on Friday, August 28th, the Internal Revenue Service issued guidance on the payroll tax deferral ordered by the President on August 8th.  The IRS Notice 2020-65 allows employers to suspend withholding and paying to the IRS, eligible employees’ Social Security payroll taxes.  There are still many questions to be answered, but the following guidance was included in the notice:

  • Eligible employees are those that earn less than $4,000 for a biweekly pay period, including salaried workers earning less than $104,000 per year.
  • The payroll tax suspension period begins with wages paid on or after September 1st through December 31st.
  • The deferred payroll taxes for affected employees will be paid back starting January 1, 2021 through April, 30, 2021.
  • After April 30, 2021, penalties and interest will be charged on any remaining balance.

The above guidance was very helpful in answering some questions, but the following are concerns for employers and employees:

  • The Presidential Memorandum ordered employers to suspend, but there are no penalties for noncompliance.
  • There is nothing in the notice that explains what happens if the employee leaves and there is no way to recuperate the deferred taxes.
  • Will employers be required to double the Social Security tax rate to 12.4% until the deferral is paid back, or will the deferred tax be paid back equally over the four months?

The Journal of Accountancy published the article Guidance Issued On Payroll Tax Deferral.  If you have additional questions or concerns, you should consult your tax advisor as to the impact of the payroll tax deferral guidance.

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