On Friday, August 28, the Internal Revenue Service (IRS) released Notice 2020-65 (click here to read), which offers guidance regarding the implementation of the Presidential Memorandum on the deferment of certain payroll taxes released earlier this month.

The memorandum, which was released by President Trump on August 8th (click here to read), called for the Secretary of the Treasury to provide for a deferral of the employee’s share of Social Security tax due between September 1, 2020 and the end of the year. The deferral only applies to employees who earn no more than $4,000 (pre-tax) on a bi-weekly basis.

While many questions remain, Notice 2020-65 does provide some clarifications regarding what wages qualify for the payroll tax deferral and the manner in which deferred taxes will be repaid.

Qualifying Wages

Qualifying wages are defined as wages taxable for Social Security purposes paid to an employee from September 1, 2020 through December 31, 2020, but only if such employee’s Social Security wages do not exceed $4,000 for bi-weekly pay periods (or an equivalent amount for other pay periods). The notice clarifies that the $4,000 threshold is applied on a pay period-by-pay period basis (i.e. employees with fluctuating wages and/or overtime may qualify to defer taxes in one pay period and fail to qualify in another pay period).

Repayment of Deferred Taxes

The notice provides that taxes not withheld during the deferment period must be withheld and repaid ratably between January 1, 2021 and April 30, 2021. After May 1, 2021, interest and penalties will begin to accrue on any unpaid amounts.  The notice further indicates that, if necessary, an employer may make arrangements to otherwise collect any outstanding deferred taxes from an employee (e.g. in the event of an employee termination prior to repaying the deferred taxes in full, the employer may need to recoup the unpaid taxes from a final paycheck).

Mandatory or Optional?

Both the Presidential Memorandum and Notice 2020-65 cite section 7508A of the Internal Revenue Code as the basis for providing the deferred payment of the employee’s portion of Social Security tax. Section 7508A authorizes the Secretary of the Treasury to postpone certain tax deadlines in response to Presidentially declared disasters (e.g. the extension of the April 15th tax filing and payment deadline until July 15th). Section 7508A only allows the Treasury Secretary to postpone certain existing statutory tax deadlines (not create new ones). Therefore, while employers may elect to utilize the payroll tax deferment period provided by the Presidential Memorandum and Notice 2020-65, neither document can compel an employer to defer withholding and/or remitting qualifying employee payroll taxes.

In Closing

We expect that the IRS will continue to release additional guidance in the coming weeks and we will continue to update you as new information becomes available. If you have questions or wish to discuss these matters, please contact us.


Abeles and Hoffman, P.C.