On August 8, 2020, President Trump issued a Presidential Memorandum directing the Secretary of the Treasury to use his authority to defer the withholding, deposit, and payment of certain payroll taxes. On Friday, August 28th, the IRS issued additional guidance on this payroll tax deferral. Pursuant to the guidance, employers that are required to pay the employee share of social security tax under Internal Revenue Code section 3102(a) or the railroad retirement tax equivalent under section 3202(a) are “affected taxpayers” for purposes of the Presidential Memorandum. For affected taxpayers, the due date to withhold and pay such taxes is now postponed until the period beginning on January 1, 2021 and ending on April 30, 2021.
For purposes of the Presidential Memorandum, the deferral applies to “applicable wages,” defined as wages or compensation paid to an employee on a pay date during the period beginning September 1, 2020 and ending on December 31, 2020, but only if such wages or compensation paid for a biweekly pay period is less than $4,000, or the equivalent threshold amount with respect to other pay periods. The determination of applicable wages is made on a pay period-by-pay period basis. The affected taxpayer must withhold and pay the deferred taxes between January 1, 2021 and April 30, 2021, or interest, penalties, and additions to tax will begin to accrue on May 1, 2021.
The IRS guidance does not mandate that affected taxpayers defer the taxes; it only states that the due date for the withholding and payment of such taxes is postponed. Further, employers must be cognizant that this order is only a deferral and therefore the taxes must be paid later. Payroll taxes are considered “trust fund taxes,” meaning employers and their officers (or other “responsible persons”) who fail to collect and pay such taxes are personally liable for any unpaid taxes. There are multiple questions that remain unanswered. For example, the guidance does not address situations where an employee is no longer employed during the repayment period or what happens if an employer has gone out of business or is bankrupt. It also does not discuss the extent to which the employer and the employee can agree to disregard the deferral.
Employers should speak with their professional advisors before considering this payroll tax deferral.
