Update for Employers Considering Deferral of Social Security Tax for Employees

Presidential Memorandum in Response to COVID-19 – Deferring Payroll Tax Obligations

On August 28, 2020, the Internal Revenue Service released Notice 2020-65 to provide guidance for employers who decide to participate in the deferral of withholding and deposit of the 6.2 percent employee portion of Social Security Tax under President Trump’s Memorandum dated August 8, 2020.

Notice 2020-65 confirms that participating employers will be required to deposit the entirety of previously deferred withholding during the period beginning January 1, 2021, and ending on April 30, 2021. Interest, penalties, and additions to unpaid tax shall begin to accrue on May 1, 2021.

Social Security Tax Deferral: Overview of Notice 2020-65

The thrust of Notice 2020-65 is that employers remain legally obligated to remit all the employee’s 6.2 percent portion of the Social Security Tax; the due date for the deposit of that withholding is simply postponed. If an employer chooses to defer withholding from an employee’s wages as outlined in the President’s Memorandum, the employer has basically two options:

1. Recoup the deferred amount from the employee between January 1, 2021, and April 30, 2021, by increasing withholding from the employee’s wages; or
2. Pay the amount due out-of-pocket on behalf of the employee and recover the amount from the employee under a method alternative to withholding.

The risk of recovery associated with either option will vary depending on many factors. Employers considering participation in the deferral are strongly encouraged to consult with their business advisors to determine their best course of action.

If you have questions about this development or other business matters related to COVID-19, please reach out to your Keiter service team or review Keiter’s COVID-19 knowledge library.

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