Executive Order – Payroll Tax Deferral Update as of 9/8/20

IRS Notice 2020-65 provided guidance on the Presidential Memorandum to defer the withholding, deposit, and payment of the employee share of Social Security tax.

The deferral may be appealing to eligible employees, but please be aware that there are risks for your business. Please consult your CPA for advice.

Some updated details have emerged for guidance:

  • Employers are not required to offer the payroll tax deferral to employees.
  • The deferral is on the employee share (6.2%) of Social Security (OASDI) payroll tax.
  • The deferral period is from Sept. 1, 2020 to Dec. 31, 2020.
  • Taxes may only be deferred for employees whose applicable wages are less than $4,000 on a bi-weekly pay period (or equivalent amount in other pay frequencies).
  • The deferral is based on a pay period by pay period basis.
  • This is only a deferral; there is no guidance that indicates that these taxes will be forgiven.
  • Employers are responsible for collecting and paying back any deferred taxes. Payments would be due between Jan. 1, 2021 and April 30, 2021. Penalties and interest on unpaid amounts begin accruing May 1, 2021.
  • Employers are responsible for paying the deferred tax for individuals who took the option, even if they no longer work for the business, whether by termination or their own decision.

There are still some open questions, including the impact on Q3, 2020 tax reporting and how employers will collect and remit the deferred payments.

PayData continues to monitor the details from the US Treasury and the IRS.  We will forward updates if new guidance and clarifications are provided.

PayData customers will not be automatically opted into the deferral.  Our systems are still being updated to support the deferral option. Once updated, if you wish to offer the deferral option to your employees, your company must complete and sign an addendum to our PayData Tax Service Agreement.