On August 8, 2020, the President issued an executive memorandum stating that certain social security tax withholding obligations for September to December 2020 would be deferred due to the COVID-19 emergency, subject to forthcoming guidance from the Secretary of the Treasury. On August 28, 2020, the Treasury Department released Notice 2020-65, implementing the option to defer withholding, deposit and payment of an employee’s share of social security tax.
Notice 2020-65 delays the due date for employees’ share of social security and railroad retirement tax withholdings that would otherwise be due on paychecks issued between September 1, 2020 and December 31, 2020. The deferral only applies to paychecks of $4,000 or less in gross wages or compensation per bi-weekly pay period (or the equivalent amount depending upon the pay period used by the employer).
Employers who wish to defer withholdings and deposits may simply defer, without filing any notification or election form. However, whenever an employer does withhold taxes, the employer must deposit them, as withholding triggers the deposit obligation. If an employer elects to defer withholding pursuant to the Notice, the deferred tax must be withheld and paid ratably between January 1, 2021, and April 30, 2021. The tax can either be withheld from earnings during that period or, if necessary, the employer may collect it directly from the employee.
Employers are not required to participate in this deferral option. While Notice 2020-65 does not explicitly say that the deferral is optional, Treasury Secretary Mnuchin has stated elsewhere that employers are not obligated to take advantage of it.
Although the executive memorandum directed the Treasury Department to consider options for eliminating the deferred tax liability, the Notice does not provide any information about forgiveness of the debt. In fact, it states that interest, penalties, and additions to tax will begin to accrue on May 1, 2021, if any portion of the deferred tax remains unpaid.
Due to the temporary nature of the deferral program, the need to pay the deferred taxes in early 2021, and the fact that the Notice is silent on key issues, employers should be cautious about making changes to their standard withholding procedures.
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FOR MORE INFORMATION
For more information about the Social Security Withholding Guidance, please contact your attorney at Gravel & Shea PC or Heather Hammond (hhammond@gravelshea.com).
