Employee Payroll Tax Deferral

On September 1, President Trump’s Executive Memorandum dated August 8 went into effect.  On August 28, the Department of Treasury issued preliminary guidance on the Memorandum, which allows certain employees to delay the payment of payroll taxes from September 1 through December 31.

The Notice announces the delay, not forgiveness, of the due date for the employer’s withholding and payment obligations of the 6.2% employee portion of Social Security payroll tax for applicable employees.  The delay applies to wages paid on a pay date during the period September 1 through December 31.  The Notice points out that the employer’s deposit obligation is also delayed.

The delay is only available to employees if the amount of such wages or compensation paid for a bi-weekly pay period is less than the threshold amount of $4,000, or the equivalent threshold amount with respect to other pay periods.  The Notice confirms that the determination of Applicable Wages is made on a pay period-by-pay period basis.

New information in the Notice notes that an employer must withhold and pay the total taxes deferred ratably from wages paid between January 1, 2021 and April 30, 2021.  Otherwise, interest, penalties, and additions to tax will begin to accrue on May 1, 2021 on the unpaid deferred taxes.  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.

The Notice appears to make clear that an employer that takes advantage of the deferral and pays wages without withholding the 6.2% employee portion of Social Security tax, would remain liable for those deferred taxes even if they could not be recouped from the employee. By delaying the due date of tax payments, the Notice would not appear to specifically preclude an employer from withholding taxes from employee wages.  That reading would be consistent with past statements by Secretary Mnuchin that these deferrals are optional.

Some advisors have speculated that all or part of the deferral may ultimately be forgiven, but there is no assurance of forgiveness from Treasury at the time of this writing.

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