On August 8^th, President Trump signed a Presidential Memorandum to direct the Treasury Secretary to use his authority to defer the withholding, deposit and payment of certain payroll taxes from employees suffering under the economic hardships brought about by the Coronavirus Pandemic.  The President’s order is made applicable to wages and compensation paid during the period of September 1, 2020, through December 31, 2020, and is subject to the following conditions:

• The deferral shall be made available with respect to any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis, or the equivalent amount with respect to other pay periods.
• Amounts deferred pursuant to the implementation of this memorandum shall be deferred without penalties, interest, additional amount, or addition to tax.

Notice 2020-65

On Friday, August 28^th, the Treasury issued Notice 2020-65 providing much-needed guidance in implementing President Trump’s directive to defer the collection and payment of payroll taxes.  The Notice provides as follows:

• The deferral applies to the withholding, deposit, and payment of (1) the 6.2% employee portion of social security tax and (2) the part of the Railroad Retirement Tax that is attributable to the 6.2% rate, on Applicable Wages.
• Applicable Wages include wages or compensation paid to an employee during the period beginning on September 1, 2020, and ending on December 31, 2020, but only if the amount of wages for a bi-weekly pay period is less than the threshold amount of $4,000, or the equivalent threshold with respect to other pay periods.
• Applicable Wages are determined on a pay period by pay period basis. This means that if the amount of wages or compensation for a pay period is less than the threshold for that pay period, then that amount is considered Applicable Wages subject to the payroll tax deferral.  This is irrespective of the amount of wages or compensation paid for other pay periods.
• The due date for payment of the deferred payroll taxes is postponed until the period beginning on January 1, 2021, and ending on April 30, 2021.
• The employer must withhold and pay the deferred payroll taxes ratably from wages and compensation paid between the period from January 1, 2021, and April 30, 2021. Interest and penalties will begin to accrue on May 1, 2021, for any unpaid tax deferred under the Notice.
• It is important to note that the Notice does not relieve the employer from the obligation to deposit the deferred payroll taxes and it would appear that the employer remains liable for the payment of the deferred taxes even if the employer is unable to collect the deferred tax from the employee. In this regard, the Notice states that if necessary, the employer may make arrangements to otherwise collect the deferred taxes from the employee.

IR 2020-195

On August 28^th, the Treasury and the IRS also issued a related release, IR 2020-195, to clarify that the payroll tax deferral provided under Notice 2020-65, applies to payments of taxable wages less than $4,000 during any bi-weekly pay period, with each pay period considered separately. The IRS release further clarifies that no deferral is available for any payment to an employee of taxable wages of $4,000 or above for a bi-weekly pay period.