IRS Issues Guidance on the President’s Payroll Tax Deferral Executive Order

On August 11th, RINA issued an alert regarding the president issuing four executive orders including one that defers payroll taxes.
 
Employers didn’t have instructions on how to implement the payroll tax order until late last Friday August 28^th, when the IRS issued guidance (i.e., Notice 2020-65) on the topic.
 
The executive order was clear that payment of the employee Old Age, Survivors and Disability Insurance taxes (OASDI taxes commonly known as Social Security taxes) is only deferred, not forgiven. The employees are still obligated to pay the taxes and if an employer chooses to defer the Social Security tax payments, Notice 2020-65 requires the employer to withhold and pay those deferred taxes later.
 
The Notice states that any employer required to withhold and pay the employee share of OASDI taxes is deemed to be affected by the COVID-19 pandemic and may take advantage of this payroll tax deferral executive order.
 
The deferral is available to employees whose pretax wages or compensation during any biweekly pay period generally is less than $4,000 or the equivalent amount with respect to other pay periods.
 
The IRS guidance declares that from January 1, 2021 to April 30, 2021, the employer must “ratably” deduct any deferred employee OASDI taxes from the wages paid to the employee and pay them over to the IRS. If those deductions and payments are not made, penalties and interest will begin to accrue on the unpaid taxes on May 1, 2021.
 
The most important take away is that neither the executive order nor the IRS notice, require an employer to defer the payment of employee OASDI taxes. The employer may choose to continue to withhold and deposit employee OASDI taxes as usual.
 
The Treasury’s guidance was released just two business days before the deferral period was set to start on September 1st, leaving little time for employers to implement the change. The timing of this guidance coupled with the employer’s choice make it highly unlikely that many employers will be participating in the payroll tax deferral executive order.
 
RINA will continue to monitor this situation and keep you updated.  Please reach out to your RINA professional with any questions.