September 18, 2020 - President Donald Trump issued the memorandum on August 8, 2020 that will take effect on wages paid starting on September 1, 2020.

Employers have the option of offering to defer the employees' portion of Social Security taxes (6.2%). If the employer does not offer the deferral, the employee will be unable to participate in the program. The employer, and not the employee, has the controlling choice. The deferral covers wages paid to employees earning less than $4,000 bi-weekly during the period September 1, through December 31, 2020. The maximum deferral will be $2,149 ($4,000 biweekly- or $104,000 annually = $8,666 per month x 4 months x .062)

IRS Notice 2020-65 provides some guidance on this memorandum. For example, as stated above, the employer has the option to offer the deferral and must test each pay period to determine whether an employee qualifies for the deferral (less than $4,000 bi-weekly). Therefore, an employee may qualify in one pay period and not in another.

The deferred taxes must be withheld and paid back to the government ratably beginning on January 1, 2021 through April 30, 2021. The employee Social Security tax withholding normally required for compensation paid during the payback period will still be required, effectively doubling the Social Security tax withholding from January 1, through April 30, 2021.  It will be the responsibility of the employer to withhold and remit the deferred tax. Penalties and interest will be assessed to the employer for any unpaid taxes starting on May 1, 2021. The obligation and liability remains with the employer even if the employee is no longer employed during the "repayment period".  Notice 2020-65 states that arrangements could be made with the employee for repayment in a manner other than ratably. However, it is unclear as to whether an employer has the authority to collect the tax from an employee who separates from employment.

There are still many uncertainties regarding the implementation and payback requirements of this deferral program. We will keep you informed as the government updates these uncertainties. As always, please contact your tax professional at Dermody, Burke and Brown, CPAs to discuss this program as it relates to your business and employees.

The information reflected in this article was current at the time of publication.  This article will not be modified or updated for any subsequent tax law changes, if any.