On August 8, 2020, President Trump issued a Memorandum to the Secretary of the Treasury authorizing the deferral of payroll taxes for certain employees from September 1, 2020 through December 31, 2020. Employers and payroll processors have eagerly awaited guidance from the IRS to address significant questions regarding implementation of the deferral.
Late Friday, just days in advance of the September 1st implementation date, the IRS released Notice 2020-65, 2020-38 IRB 1, implementing the deferral set forth in the Memorandum. The Notice officially defers the due date for payroll taxes for certain employees, but provides that the deferred taxes must be repaid ratably between January 1 and April 30, 2021. Further, if any of the deferred tax remains unpaid on May 1, 2021, interest, penalties and additions to tax will begin to accrue. The Notice provides that each employee’s deferral eligibility is determined separately for each pay period – if an employee’s pay is not consistent throughout the year, the employee may be eligible for deferral for certain pay periods and not others.
Notably, the guidance places the burden on employers either to collect the tax from employees’ paychecks or pay it themselves in early 2021. The guidance is silent as to what employers should do if an employee ceases employment before April 30, 2021. Presumably, the employer remains on the hook for repaying the deferred taxes, and must pay the taxes if it cannot collect the funds from the employee. Continue Reading