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IRS Notice 2020-65: Guidance for Employers on President Trump's Memo on Payroll Tax

by Peter Klinger
August 30, 2020

On August 28, the IRS and Treasury published Notice 2020-65, which provided guidance for employers on President Trump's executive order on payroll tax deferral. Below, we've developed an executive summary of the items that matter most to businesses:

  1. The due date for the withholding and deposit of employee FICA old-age, survivors and disability insurance taxes (6.2%) on wages paid beginning September 1 and ending on December 31 is postponed until early 2021.
  2. Only FICA taxes on wages below $104,000 annually (or $4,000 per bi-weekly pay period or equivalent for other pay periods) are eligible for the deferral. No pro-rata deferral is permitted if wages are above the threshold.
  3. The wage threshold is determined on each pay period irrespective of any other pay period.
  4. Deferred taxes must be collected ratably by the employer beginning on January 1 through April 30, 2021, and deposited accordingly.
  5. Only the time for withholding the taxes has changed pursuant to the Notice, not the deposit timing rules. However, the deposit timing rules only take effect once the taxes have been withheld.
  6. On September 3, 2020, during a regularly scheduled monthly payroll industry teleconference, Kelly Morrison-Lee, an attorney with the Internal Revenue Service, confirmed that "employers may, but are not required, to utilize the relief," thereby making it optional on the part of employers.

Our Takeaway

It is not clear from the published guidance as to what would happen if an employee terminated before the tax was withheld. Equally unclear is how a deferral should be reported on an employee's Form W-2 which is due by January 31, 2021, prior to when the tax would be fully collected and deposited. We hope the Treasury or IRS will clarify soon. We'll continue to monitor Treasury and IRS guidance, and we will provide updates as we receive them.

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If you have questions or need help understanding the impact of these changes, don't hesitate to reach out to our experts.

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Authors
Peter Klinger - Partner, Tax - San Ramon, CA
Partner
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