IRS Issues Guidance on Social Security Tax Withholding Deferral

On August 28^th, 2020, the Department of Treasury and Internal Revenue Service (IRS) issued guidance implementing a Presidential Memorandum (Memo) issued on August 8th, 2020. Created in response to the COVID-19 pandemic, the Memo allows employers to defer withholding and payment of the employee's portion of the Social Security tax if the employee's wages are below a certain amount.

Background of IRS Notice 2020-65

After President Donald J. Trump issued his Memo, the Secretary of the Treasury determined that employers who are normally required to withhold and pay the employee share of the social security tax under section 3102(a) of the Internal Revenue Code (Code), or the railroad retirement tax equivalent under section 3202(a) of the Code, are affected. In response to the Memo, IRS Notice 2020-65 was created. Under this guidance, for employers, the due date for the withholding and payment of social security taxes on applicable wages is postponed until the period beginning January 1^st, 2021, and ending April 30^th, 2021.

Applicable Wages

As defined in the new IRS guidance, “applicable wages” constitute wages or compensation paid to an employee on a pay date between September 1^st, 2020, and December 31^st, 2020. The amount of such wages or compensation paid for a bi-weekly pay period, however, must be less than $4,000, or the equivalent amount with respect to other pay periods. The determination of applicable wages also must be made on a pay period-by-pay period basis, as some employees may earn different amounts based on hours worked.

Payment of Deferred Taxes

As mentioned earlier, employers must pay the total deferred applicable taxes out of any wages and compensation that will be earned between January 1^st, 2021, and April 30^th, 2021, Any unpaid applicable taxes to the IRS will begin to accrue interest and penalties starting on May 1^st, 2021. Under IRS Notice 2020-65, if necessary, the employer may make arrangements to otherwise collect those applicable taxes directly from the employee. Additional tax relief related to the COVID-19 pandemic can be found on IRS.gov.