New IRS guidance for employers implementing President Trump’s payroll tax deferral order requires the deferred taxes to be repaid within the first four months of next year, but employers will be on their own in collecting the taxes from employees.
Notice 2020-65, 2020-38 IRB 1, released August 28, postpones the date by which employers must withhold and pay over some payroll taxes for workers earning less than $4,000 per biweekly pay period. Under the guidance, payroll taxes that would otherwise be withheld between September 1 and December 31 are due between January 1, 2021, and April 30, 2021.
Interest, penalties, or additions to tax will accrue starting May 1, 2021.
The brief guidance comes just days before the September 1 implementation date of Trump’s executive memorandum calling for deferment of the payment of employees’ portion of the Social Security payroll tax.
While the IRS notice states that employers must withhold the deferred taxes from wages and compensation paid from January to April 2021, it adds that employers “may make arrangements to otherwise collect” the taxes from employees.
The notice doesn’t explicitly address how employers should treat the deferred taxes of employees who later quit, and it doesn’t say whether employees can opt out of the program.
“It is excellent guidance from the standpoint that it confirms everyone’s worst fears,” Veena K. Murthy of Crowe LLP told Tax Notes. The guidance means that employees “will face a potential hardship, because double withholding of the 6.2 percent Social Security tax will be required,” she added.
“So nothing has changed, other than this guidance confirms that implementing this supposed boon is not in either an employer’s or its employees’ best interests,” Murthy concluded.
The payroll tax deferral has been criticized by lawmakers and panned by businesses — including the National Association of Manufacturers and the U.S. Chamber of Commerce — as unworkable. Still, the Agriculture Department’s National Finance Center, which provides federal agencies’ administrative services, announced August 21 that it would be implementing the deferral.
Larry Kudlow, director of Trump’s National Economic Council, has said the administration wants the payroll tax deferral to be forgiven, but that would require an act of Congress.
Jonathan Curry contributed to this article.