On Thursday, September 3, the IRS stated in a payroll industry teleconference that the employee FICA tax deferral implemented by President Donald Trump through an executive order is optional (see below for the original Whitley Penn tax alert regarding the payroll tax deferral). On the conference call, the IRS stated that the deferral is elective and is made solely at the discretion of the employer. The employer is not required to defer the employee share of payroll taxes even if employees request deferral.
August 29, 2020: IRS Guidance on Payroll Tax Deferral
On August 8, President Trump issued an executive action directing the Treasury Department to defer the withholding and payment of the employee portion of FICA tax on wages paid from September 1, 2020 to December 31, 2020. The executive order required the Treasury to provide guidance regarding the detailed rules and practical application of the payroll tax deferral. See “Whitley Penn Tax Alert: Additional Guidance Issued for PPP Loan Forgiveness (But not for Payroll Tax Deferral)” dated August 27, 2020.
Late on Friday, August 28, the IRS issued Notice 2020-65 that provides guidance regarding the payroll tax deferral. The guidance provided in the IRS Notice includes:
- Employers may defer withholding, deposit, and payment of the employee portion of FICA and Tier 1 Railroad Retirement Act taxes attributable to compensation and wages paid from September 1, 2020 through December 31, 2020.
- The deferral is determined on a bi-weekly basis for any employee whose pre-tax compensation and wages during that bi-weekly pay period are less than $4,000. Therefore, the deferral may apply to an employee during some pay periods even if it does not apply during other periods.
- Wages and compensation includes all cash and other remuneration paid to an employee reduced by the employee’s applicable wage exclusions such as cafeteria plan contributions, payments on account of an employee’s death, moving expense reimbursements, and certain other fringe benefits.
- Employers are required to withhold and pay the 2020 deferred taxes ratably from compensation and wages paid between January 1, 2021 and April 30, 2021. Penalties and interest for taxes not remitted will begin to accrue beginning on May 1, 2021.
- The notice allows employers to make arrangements to collect the deferred taxes from an employee, but does not specify how that might be accomplished.
Whitley Penn is continually monitoring the tax and economic developments related to the coronavirus pandemic and will send out additional alerts in the future. In the interim, please contact your Whitley Penn tax advisor if you have any questions or require any additional information.
For more information regarding the CARES Act and the SBA loan programs, please see the COVID-19 information page on the Whitley Penn website at https://www.whitleypenn.com/covid-19/.