IRS Guidance on President’s Decision to Allow Social Security Tax Deferral
This client alert digest discusses I.R.S. Notice 2020-65 which provides guidance on President Trump’s decision to allow an employer’s deferral of withholding on the employee portion of Social Security taxes owing for the remainder of 2020 for employees earning up to $104,000 per year. White House, Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster. 85 Fed. Reg. 49,587 (Aug. 14, 2020).
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Choosing not to withhold for the remainder of 2020 and withholding that amount in the first quarter of 2021, instead, creates obvious payroll administration issues, and may foster employee discontent when employees’ first quarter 2021 wages are withheld at a double-Social Security rate. Additional issues arise where employees are no longer on the payroll in 2021. As Daniel Morgan, partner at Blank Rome LLP, states in his article referenced below titled Payroll Tax Deferral Won’t Help Employees or Employers, “[a]lthough an employee is individually liable for the deferred Social Security taxes, the employer is liable as well, and the IRS will almost assuredly be looking to the employer, and not to the employer’s employees, if the deferred taxes are not paid.” This alone should cause employers to pause before making the decision not to withhold.
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“IRS Guidance on President’s Decision to Allow Social Security Tax Deferral,” was published as a LexisNexis Practical Guidance® Client Alert Digest on September 17, 2020.