Guidance on Payroll Tax Deferral Tells When It Must Be Repaid

In guidance about the payroll tax deferral, the IRS says unpaid amounts must be withheld and paid between January 1 and April 30, 2021.

Payroll taxes are shared by the employer and employee, each paying 6.2% of wages along with a 1.45% tax for Medicare. On August 8, President Donald Trump signed a presidential memorandum directing the Secretary of the Treasury to use his authority to defer the withholding, deposit and payment of taxes to Social Security from September 1 through December 31 for employees making less than $104,000 a year. Employers are still required to pay their portion.

According to IRS Notice 2020-65, “the Secretary has determined that employers that are required to withhold and pay the employee share of Social Security tax under Section 3102(a) or the railroad retirement tax equivalent under Section 3202(a) are affected by the COVID-19 emergency for purposes of the relief described in the presidential memorandum.” Treasury Secretary Steven Mnuchin said previously that while he encourages employers to withhold the taxes, he cannot mandate that they do so.

The tax may be deferred for any employee whose “wages or compensation paid for a bi-weekly pay period is less than the threshold amount of $4,000.” The deferred taxes must be withheld and paid ratably per pay period for affected employees between January 1 and April 30 of next year or interest on the amounts will accrue starting May 1.

Trump’s order also directs the Treasury Department to look into how the government can forgive the deferred payments, a power only Congress has. Sources worry that if Congress does so, it would add a significant strain on the solvency of Social Security.