On Aug. 28, the IRS issued Notice 2020-65 to provide guidance on how to implement the Executive Memorandum on payroll tax deferral. This memorandum instructs the Secretary of the Treasury to defer the withholding, deposit, and payment of the tax imposed on the employee portion of the Social Security tax of 6.2%.

The employer is responsible to collect and remit any deferred taxes. 

Keep in mind that this is a deferral and nothing in the memorandum explicitly forgives this amount nor can it without an act of Congress. 

Employers, meanwhile, have had the ability to defer payment of the employer share of the Social Security tax since the passage of the CARES Act in April. The law allows the deferred amounts to be paid over a two-year period – with half due by Dec. 31, 2021 and the other half due by Dec. 31, 2022.

Employers may be facing the brunt of any implementation because of the complexity created on calculating and tracking such tax deferrals. Plus, the process itself of creating new regulations is wrought with layers of complexity, including rules that might change as the process progresses from drafting proposed regulations to taking public comments to issuing finalized regulations. If shifts occur, employers will need to be nimble and stay up to date on any changes to current law.

Here are answers to some frequently asked questions on the Payroll Tax Deferral Guidance:

Am I eligible to defer social security tax for my employees?

Employers who are required to withhold and pay the employee share of Social Security tax under section 3102(a) are affected by the COVID-19 emergency for purposes of the relief described in the Presidential Memorandum.

When are deferred taxes due?

The due date for the withholding and payment of the employee share of Social Security tax on Applicable Wages is postponed until the period beginning on Jan. 1, 2021 and ending on April 30, 2021.

What are Applicable Wages?

Applicable Wages are wages or compensation paid to an employee on a pay date during the period beginning on Sept. 1, 2020 and ending on Dec. 31, 2020 but only if the amount of the wages or compensation is less than a defined threshold amount for each pay period.

How are Applicable Wages determined?

The determination of Applicable Wages is made on a pay period-by-pay period basis. 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. The employer then may defer the employee share of social security tax on the Applicable Wages, irrespective of the amount of wages or compensation paid to the employee for other pay periods.

What are the threshold amounts for common pay periods?

• Bi-weekly pay period: Less than $4,000 
• Weekly pay period threshold amount: $2,000 ($2,000 x 52 weeks = $104,000.00)
• Semi-monthly pay period threshold amount: $4,333.33 [$4,333.33 x 24 (2 pay periods/month) = $103,999.92]
• Monthly threshold amounts: $8,666.66 ($8,666.66 x 12 months = $103,999.92)

Note: These assumptions are based upon the original $104,000 annual limit put forth in the President’s Executive Memorandum. This is also assuming 26 check dates, for a bi-weekly schedule. ($4,000 x 26 = $104,000). The guidance does not specifically indicate any threshold amount other than the bi-weekly amount.

The IRS has released a draft Form 941 to reconcile this deferral, but this could be revised before the final version. Additionally, we await instructions for the form to understand how the specifics work.