On Friday, the IRS released IR-2020-195, effectively providing employers guidance for the Presidential Memorandum (“Memorandum”) to defer certain employee Social Security tax withholding.
This highly anticipated relief was first introduced on August 8th in Notice IRS 2020-65 by President Donald J. Trump. This Memorandum allows employers to defer withholding and payment of the employee's portion of the Social Security tax if the employee's wages are below a certain amount. Under IR-2020-195, employers can defer the withholding, deposit, and payment of certain payroll taxes on applicable wages paid from Sept. 1 through Dec. 31, 2020.
This Notice states that employers that are required to withhold and pay the employee share of social security tax, or the railroad retirement tax equivalent, are affected by the COVID-19 emergency and qualify for relief. As a result, for affected taxpayers, the due date for the withholding and payment of the tax on applicable wages is postponed until the period beginning on January 1, 2021, and ending on April 30, 2021.
The determination of applicable wages is made on a pay period-by-pay period basis. Notice 2020-65 defines applicable wages to which deferral can be applied as pretax compensation that is less than $4,000 during a bi-weekly pay period, or the equivalent threshold amount with respect to other pay periods.
"If the amount of wages or compensation payable to an employee for a pay period is less than the corresponding pay period threshold amount, then that amount is considered Applicable Wages for the pay period, and the relief provided in this notice applies to those wages or that compensation paid to that employee for that pay period, irrespective of the amount of wages or compensation paid to the employee for other pay periods." - Notice 2020-65
Employers that opt to defer taxes must withhold and pay the total deferred taxes (from paid wages and compensation) during the period between Jan. 1, 2021, and April 30, 2021. Unpaid applicable taxes will be subject to interest, penalties, and additions that will begin to accrue on May 1, 2021.
For questions or to learn how this applies to your business, connect with us via the contact link below. For more stories on COVID-19 regulatory changes, visit the Bowman Blog.