Insights 9/04/20

As you probably know, on August 8, 2020, the President issued a memorandum related to delaying the employee portion of Social Security payroll taxes. Then, on August, 28, the IRS released Notice 2020-65, found here: setting forth some guidance on the President’s memorandum. As expected, the Notice announced an optional delay of the due date for the withholding and payment obligations of employers for the 6.2% employee portion of Social Security payroll tax for certain employees. The delay applies to wages paid on a pay date between September 1, 2020 through December 31, 2020. The Notice points out that the employer’s deposit obligation for that employee portion of the tax, at the employer’s option, is also delayed. The Notice provides that the delay will only be available to employees if the amount of their wages or compensation paid for a bi-weekly pay period is less than $4,000, or the equivalent amount for other pay periods.

The most significant new information in the Notice is that an employer must withhold and pay, on a pro rata basis between January 1, 2021 and April 30, 2021 , the total taxes that were deferred from wages paid between September 1, 2020 and December 31, 2020. Otherwise, interest, penalties, and additions to tax will begin to accrue on May 1, 2021 for all unpaid deferred taxes. Unfortunately, the Notice does not indicate what the employer should do if the employee is no longer employed in 2021, other than to say that the employer “may make arrangements to otherwise collect” the deferred taxes from the employee. Regardless, though, if an employer pays wages without withholding the 6.2% employee portion of Social Security tax, the employer would still remain liable for those deferred taxes even if they could not be recouped from the employee. Consequently, RMI is strongly encouraging clients to not engage in this deferral program, especially since the Notice does not appear to specifically preclude an employer from withholding the 6.2% from employee wages, essentially paying the tax early (or, really, on time if there were no Notice).

In short, because the deferred tax would soon have to be repaid by the employee and also because the employer runs the risk of being obligated to pay the tax in the event that an employee leaves, RMI doesn’t see this as a viable option for our clients and their employees. As a result, again, RMI advises against utilizing this deferral. As we receive updates on this topic or if substantial changes are made in the coming weeks, we will make that information available to you.