Presidential Executive Memorandum

Deferring Payroll Taxes

Sep 11, 2020 2:08:24 PM

On Saturday, August 8, 2020, President Trump signed an executive memorandum (not an 'order') deferring the employee portion of social security tax (6.2%).

Here's the link to this executive memorandum:  https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/

Finally, on Friday, August 28, 2020 (at 5:15pm eastern time), the IRS issued this guidance:  https://www.irs.gov/pub/irs-drop/n-20-65.pdf 

UPDATE SEPTEMBER 1, 2020:

Key points in the IRS guidance:

  • The President's memorandum allows for the deferral of the employee's share of Social Security tax (6.2% of taxable wages) on wages paid between September 1, 2020 and December 31st, 2020.  
  • The deferral is limited to employees earning less than $4,000 in taxable wages per bi-weekly pay period ($104,000 annually)  
  • Employers can begin recovering and remitting the deferred employee Social Security tax from wages paid to employees between January 1st, 2021 and April 30th, 2021
  • Payment of the deferred employee Social Security tax is due on May 1st, 2021 with interest, penalties and additions to begin accruing against the Affected Taxpayer (the employer) on unpaid amounts after this date.

Some of the unanswered questions:

Even with the IRS's latest notice on the President's memorandum, there are still a number of unanswered questions and potential pitfalls related to the deferral, reporting, collecting, and remitting of deferred employee Social Security tax in your payroll software.  These include:

  • What happens if an employee, whose Social Security Taxes were deferred, leaves employment before the employer can collect the deferred tax amounts from the employee?  
  • Does the responsibility for remitting deferred employee Social Security Tax rest solely with the employer?
  • If an employer is unable to collect deferred Social Security tax from an employee, will the employee remit the deferred tax amount due with their Federal Tax Return for 2020?  If not, then are employers responsible for paying the employee's share of Social Security tax?
  • Can employers opt to defer Social Security tax for certain employees but not others?
  • How will employee Social Security Tax deferrals be reported on the employee W-2?
  • How are employee Social Security Tax deferrals reported on Form 941?

We will post more soon as the IRS (hopefully) clears up the significant remaining questions to the guidance noted above.

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David Hanna

Written by David Hanna

David Hanna graduated with an undergraduate degree in Business Administration/Major in Accounting and his Masters in Business Administration from the University of South Dakota. He spent 10 years in public accounting as a CPA doing various income tax work and business valuations including related expert witness services in shareholder litigation. He spent 3 years as CEO of a hotel management company with over 350 employees. He has been the owner/managing member of Paystubz since 2007 – see more at www.paystubz.com – or call him at: 605-721-2480

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