Employer guidance on deferral of employee Social Security taxes

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August 2020

Overview

Treasury and the IRS on August 28 issued Notice 2020-65, implementing an Executive Order issued by President Trump on August 8 allowing employers to defer withholding and payment of an eligible employee’s portion of Social Security tax. President Trump’s executive order directed Treasury Secretary Mnuchin to use his authority to defer the withholding, deposit, and payment of the employee share of Social Security taxes (or the equivalent Railroad Retirement Tax Act taxes) on employee wages paid from September 1, 2020 to December 31, 2020.  

Employers may defer withholding the employee Social Security tax on taxable wages paid to an employee that are less than $4,000 during a bi-weekly pay period, with each pay period considered separately.   

Notice 2020-65 requires employers that defer withholding employee Social Security taxes pursuant to the Executive Order to recapture the total amounts deferred ratably from wages and compensation paid between January 1, 2021 and April 30, 2021. Employers that do not remit the total deferred amounts by April 30, 2021 will be subject to interest, penalties, and additions to tax which will begin to accrue on May 1, 2021, with respect to any unpaid deferred amounts. 

The takeaway

President Trump’s Executive Order on deferring employee payroll taxes left many questions on the logistics and implementation for Treasury and the IRS to address.  Notice 2020-65, while clarifying that the deferral is at the option of employers, still leaves many questions unanswered.  Employers will want to consider whether they want to defer the withholding of employee Social Security taxes given the liability and system change requirements.

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Kevin Brown

Principal, Tax Controversy and Regulatory Services Leader, PwC US

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