IRS Guidance on Payroll Tax Deferral Leaves Key Question Unanswered

The Internal Revenue Service (IRS) recently released Notice 2020-65 implementing the Aug. 8 presidential memorandum instructing the Department of Treasury to use its statutory authority to permit employers to defer withholding and payment of the employee's 6.2% social security tax.

Notice 2020-65 allows employers to postpone the withholding and payment of an employee’s social security taxes on wages paid to an employee on Sept. 1, 2020 through Dec. 31, 2020, if the employee’s biweekly pay is less than $4,000.  As the tax is only postponed, employers remain responsible for paying those taxes in 2021.

The IRS notice requires employers to repay the deferred taxes over four months on wages and compensation paid beginning on Jan. 1, 2021 and ending on April 30, 2021. Interest and penalties will begin to accrue on any taxes not repaid beginning May 1, 2021.

However, the notice leaves unanswered a key question for employers: what happens if an employee departs the business before the deferred taxes are fully collected back? The guidance only offers that "if necessary, the affected taxpayer may make arrangement to otherwise collect the total Applicable Taxes from the employee."

NAHB recommends that employers considering implementing this payroll tax deferral talk to their tax professional. Employers should also note that under the CARES Act, businesses are permitted to defer payment of the employer portion of Social Security tax.

NAHB is providing this information for general information only. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind nor should it be construed as such.