Legal Alerts/Details

Payroll Tax Deferral – What the Treasury Guidance Did and Did Not Make Clear

September 8, 2020
Footnotes:
  1. President Trump signed a memorandum on August 8, 2020 authorizing the IRS to implement rules respecting a payroll tax deferral program.  That memorandum was followed by the IRS’ publication of Notice 2020-65, which was clarified by remarks made on September 3, 2020 by an IRS representative during the IRS’ monthly payroll industry teleconference – the memorandum, IRS Notice, and clarifying comments are collectively referred to in this article as the Notice.
  2. This amount is calculated as the product of $3,000, multiplied by 6.2 percent, and represents the employee’s portion of Social Security taxes that would generally be withheld during each applicable pay period.
  3. Additionally, certain “responsible persons” (e.g., executives and officers of the employer) may be personally liable if these taxes are never paid to the IRS.  See, Code Sections 6672 and 7202.
  4. Respecting the imposition of interest and penalties, the Notice only contemplates a very straight forward situation in which (i) the employee is employed by the same employer from September 1, 2020 through April 30, 2021, (ii) Deferred Taxes are not withheld during the Deferral Period, and (iii) Deferred Taxes are withheld, ratably, from wages paid during the Catch-up Period.  In such a case, failure to timely pay Deferred Taxes will be subject to interest, penalties, and additions to tax, each of which begin to accrue on May 1, 2021 on any unpaid Deferred Taxes.  However, the Notice does not address whether interest or penalties will commence earlier on unpaid Deferred Taxes if, for example, the employee’s employment is terminated before the end of the Catch-up Period.  For example, if employment is terminated on December 31, 2020, does the employer still have until April 30, 2021 to avoid the imposition of interest and penalties on the Deferred Taxes?

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