IRS Issues Employer Guidance on the Temporary Deferral of Federal Payroll Taxes

Tuesday, September 1, 2020 – The IRS has issued guidance for employers who wish to defer payments of certain federal payroll taxes. The new IRS guidance implements President Trump’s recent Executive Order allowing for the voluntary deferment of both the federal withholding tax and social security tax contribution share paid by the employee. The deferment is designed to help employers who may be experiencing cash flow difficulties due to the COVID-19 pandemic.

Payroll Taxes Deferred – Employers may temporarily defer both federal employee withholding taxes and the 6.2% of income share of employee’s social security tax contributions.

Eligible Pay Periods – Deferred payments of the federal withholding and social security contributions described above may be taken on any qualifying pay period. Qualifying pay periods are limited to those where an employee’s wages or compensation is less than $4,000 ($104,000 annually) on a biweekly or equivalent basis. Deferments cannot be made for any biweekly or equivalent pay period where an employee’s wages or compensation is $4,000 or more. 

Eligible Employers – Any employer with employees earning wages or compensation under the $4,000 eligibility threshold in any biweekly or equivalent pay period may defer payments for that period. 

Tax Deferment Period – The tax deferment period runs from September 1, 2020 through December 31, 2020.

Tax Repayment Date – Employers who chose to take the deferment must withhold and pay the total amount of payroll taxes deferred on a ratable basis from wages or compensation paid between January 1, 2021 and April 30, 2021. Interest and penalties will accrue on the payroll taxes deferred beginning on May 1, 2021. 

Alternative Recapture Arrangements – In the event an employee is dropped from the payroll before the April 30, 2021 repayment deadline, the employer may make arrangements to otherwise collect the employees share of the deferred taxes.