IRS Guidance on Payroll Tax Deferral Leaves Many Questions Unanswered by Lewis Taub, CPA

Posted on September 02, 2020 by Lewis Taub

On Aug. 28, 2020, the IRS issued guidance to help employers carry out the temporary deferral of payroll taxes, which the President introduced three weeks prior as a measure to “put money directly in the pockets of American workers” and kickstart the economy. However, taxpayers should be forewarned that the guidance does not answer all the questions they may have about the payroll tax deferral and should therefore speak with their tax accountants and advisors before taking any action.

Under IRS Notice 2020-65, employers may elect to temporarily halt the withholding of certain employees’ portions of Social Security tax for the period of September 1 through December 31, 2020. The notice specifies relief from the 6.2 percent Social Security tax is applicable only for employees whose wages or compensation are less than the threshold of $4,000 on a biweekly basis. Employers would need to repay the deferred amounts to the IRS between January 1 and April 30, 2021, by either withholding an additional amount of workers’ pay or by making arrangements “to otherwise collect the total applicable taxes from the employee.” In other words, businesses may take action to help their employees take home more pay during the last four months of the year only to leave them with a higher tax obligation in 2021 or more tax withheld from their paychecks during the first four months of the year.

For small businesses and self-employed taxpayers, the CARES Act already allows an election to defer payment of their share of employees’ Social Security and Medicare tax through 2020. The first half of the deferred amount would payable by Dec. 31, 2021, with the remaining balance due on Dec. 31, 2022.

Absent any Congressional action to enact any additional stimulus laws in response to the COVID-19 pandemic, businesses of all sizes should think twice before deferring employee’s payroll taxes and leaving their workers with a tax obligation that employees may not be able to able to meet.

About the Author: Lewis Taub, CPA, is a director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where he works with entrepreneurial business, multinational and multi-state corporations on tax planning and compliance strategies, including those related to mergers and acquisitions, basis issues and debt restructuring. He can be reached at the CPA firm’s New York City office (646) 213-7600 or