The Internal Revenue Service (IRS) on Friday issued much-anticipated guidance on the payroll tax deferral that was ordered by President Donald Trump in a presidential memorandum earlier this month.
According to Notice 2020-65, employers — including county governments — may defer Social Security payroll taxes on eligible employees’ compensation during the last four months of 2020 and then withhold those deferred amounts during the first four months of 2021.
The president signed the memorandum on August 8 calling for a deferral of the employees portion of the payroll tax from September 1 through the end of the year in an effort to provide relief to workers amid the COVID-19 pandemic. Employers can choose whether or not to opt in to the tax deferral.
Currently, employers and employees share responsibility for a 12.4% levy that funds Social Security and a 2.9% tax to finance Medicare. The memorandum stipulates that employers can only defer payroll taxes for employees who make less than $4,000 on a biweekly basis.
While the president has said he would forgive any deferred taxes if he wins reelection in November, only Congress has the power to waive taxes. Since there is no guarantee that the employee’s share of deferred taxes will be forgiven, many businesses — which argue that there are still uncertainties about how it would apply and that a deferral could be onerous for employees who may have to repay the taxes next year — have said they will not participate in the tax holiday.
Stay tuned to Conduit Street for more information.