Advisory: Federal Tax Deferral is Optional

September 02, 2020
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On August 8, President Trump issued a memorandum titled, Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster. This memorandum authorizes the Secretary of the Treasury to allow deferral of the withholding and payment of Federal Insurance Contributions Act (FICA) payroll taxes from September 1 - December 31, 2020. Witholding and payment of FICA would then increase for the time period from January 1 - April 30, 2021.

On Friday, August 28, the IRS issued Notice 2020-65, providing guidance on President Trump's memorandum. The guidance indicates:

  • Employers are the "Affected Taxpayers" and thus responsible for ultimate payment of all taxes owed; and
  • "If necessary, the Affected Taxpayer may make arrangements to otherwise collect the total Applicable Taxes from the employee."

As of today, September 2, 2020, the IRS Notice 2020-65 Hotline now includes a NEW message indicating that employer participations is "optional:"

  • "...the relief for employers under this notice is optional..."
  • "...employers may, but are not required to utilize the relief..."
  • "Further, Notice 2020-65 does not address how an employer chooses to implement the relief."

Finally, there is currently no proposed legislation in Congress that will forgive the tax, thus if an employer chooses to implement the deferral they should review IRS Notice 2020-65 and consider how to address seasonal employees that may be employed now, but not in January, as well as the impact on employee payroll deductions beginning January 2021, which would increase (double) to make up for any deferral in 2020.

For further questions on how to implement the Federal Tax Deferral, it is important to consult with your accountant and/or tax attorney.

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