Article by: Jeffrey Skolnick, CPA, M.S. Taxation

On August 28th, the Treasury issued Notice 2020-65 to provide guidance on the employee portion of Social Security taxes deferred between September 1, 2020 and December 31, 2020.

Recap of the Executive Order

The order defers payment of the 6.2% withholding on employees that earn under $4,000 bi-weekly or the equivalent amount with respect to other pay periods. The deferral is applicable to payroll checks from September 1, 2020 through December 31, 2020. The order defers the withholding and discusses the Treasury exploring avenues to eliminate this deferred obligation altogether. Meaning the payment would never be paid.

Treasury Guidance

The notice issued on August 28th states that the withholding deferred between September 1st and December 31st must be paid between January 1st and April 30th of 2021. This presumably results in a 12.4% withholding rate in 2021 (double the normal rate) and is therefore merely a delay in paying the tax.

Remaining Questions

There are a number of questions that still remain:

The Executive order requests the Treasury Secretary to explore avenues to eliminate the obligation to pay the taxes deferred. In other words, he would like to see the deferred taxes eliminated, instead of being required to be paid back. Is this possible?

The answer is it is possible, but I am not sure how likely it is. First of all, President Trump would have to win reelection and second a law would need to be passed in order to allow forgiveness. If the Democrats retain the House and/or take control of the Senate, it is unlikely to happen.

What happens if an employee who has had their payroll taxes deferred in 2020, leaves your Company before April 30, 2021?

I have seen no guidance on this, but my fear is that this would become a Company obligation. If the tax deferred must be repaid and the employee is not there to earn wages from which to take the withholding, that possibly leaves the Company on the hook.

What happens if the Company goes out of business before April 30, 2021?

Normally, even if a Company goes out of business, its owners remain responsible for payroll taxes withheld as these are considered trust funds of the government which were never supposed to be used by the business for other purposes. Will the owners remain liable?

At this time, I have no answer for this question, but I am expecting guidance down the road.

Can a company decide to withhold payroll taxes from some, but not all employees? In other words, can they give the employees a choice?

There is no guidance at this time.

Can a Company decide not to defer payment initially, and then change its mind in a few weeks when the law is further clarified?

Unfortunately, at this time there is no answer to this question.

Should your Company choose the deferral?

This is the question everyone has. Currently, the decision is a difficult one. As you can see there are many questions that remain on the subject. I expect that we will see additional guidance issued in the coming weeks and I will pass it along as soon as it becomes available.

Join me, Every Monday at 12:30pm (EST) here: https://www.facebook.com/jeffcpaworld/

If you’d like to book an appointment with me, please click on the link below:

Hang in there and stay safe,

Jeff Skolnick, CPA, M.S. Taxation