President Trump's Payroll Tax Deferral

Updated at 9:30 a.m. on September 2

On August 8, 2020, President Trump issued a Presidential Memorandum allowing the deferment of withholding, depositing and paying the employee portion of social security taxes from wages paid September 1 to December 31, 2020. Employees whose pre-tax wages or compensation is less than $4,000 for a bi-weekly period (roughly $104,000 annually) qualify for this deferment of payroll taxes.

Late last week, the Treasury Department issued additional guidance through Notice 2020-65 regarding the Presidential Memorandum. This notice allows for employers to defer the employee’s social security tax on wages paid during the last four months of the year. If an employer does elect into the deferment, employers would be required to remit the deferred taxes on wages paid September 1 through December 31 between January 1, 2021 and April 30, 2021. Employers would need to withhold additional social security taxes from employee’s paychecks during this timeframe to remit to the government. This poses an additional threat to employers if there is turnover in their company, as the employer is liable to remit the social security tax that was previously deferred. Interest, penalties and additions to tax will begin to accrue on May 1, 2021. The notice does allow employers to make other arrangements to collect the deferred social security tax from employees if necessary. In addition, this notice clarifies that an employee’s qualification for deferment is based on the bi-weekly period and eligibility can change between pay-periods.

Due to the lack of guidance and unknowns surrounding this deferral, the benefits and risks of implementation remain unclear. All factors should be carefully considered before moving forward with the payroll tax deferral. Please let your MHCS advisor know if you have any questions.