IRS Employee Payroll Tax Deferral Guidance

August 31, 2020 - On Friday, August 28, the IRS issued guidance on President Trump’s executive order allowing for the deferral of payroll taxes on wages paid after September 1. While the guidance clarifies some items, unanswered questions remain. The payroll tax deferral is available on the employee portion of Social Security taxes (6.2%) for wages or compensation paid between September 1, 2020 and December 31, 2020. The deferral is only available if the amount of wages or compensation for the bi-weekly pay period is less than $4,000 (or equivalent threshold for other pay periods). While not explicitly provided for in the guidance, it does not appear that employers are required to participate in the payroll tax deferral program.

Any taxes deferred under the guidance should be withheld and paid ratably from wages or compensation paid between January 1, 2021 and April 30, 2021. The notice provides that, if necessary, employers “may make arrangements to otherwise collect the Applicable Taxes from the employee.” However, additional guidance will likely be required on these arrangements to protect employers from the employee payroll tax liability in the event of termination in employment or a reduction in pay.

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