On August 28, 2020, the IRS issued Notice 2020-65. Effective September 1, 2020 employers are permitted to suspend withholding and paying to the IRS eligible employees’ Social Security payroll taxes.
The payroll tax suspension period runs from September 1, 2020 through December 31, 2020 and only applies to employees whose wages are less than $4,000 for a biweekly pay period and to salaried workers earning less than $104,000 per year.
Employers would then collect additional amounts from workers’ paychecks from January 1, 2021 through April 30, 2021 to repay the tax obligation.
The decision on whether to participate is voluntary. Many questions remain unanswered. For example, the IRS guidance does not address penalties for employers that choose not to defer withholding of employees’ Social Security taxes and does not address whether employees can opt out. Additionally, the guidance does not address how employers should treat the deferred taxes of employees who later quit.
We expect more guidance to be forthcoming.