On August 8 the President signed a memorandum directing the Secretary of the Treasury to defer the withholding, deposit, and payment of the withheld portion of social security taxes and railroad retirement taxes. The deferral is applicable for wages/compensation paid during the period of September 1 to December 31, 2020, however, the deferral is only available to employees who meet income requirements. You can view the memorandum here:

Yesterday, the IRS issued Notice 2020-65 to provide guidance in the implementation of this presidential memorandum. See The notice states that the employer’s obligation to deposit the employee’s share of social security tax does not arise until the tax is withheld. The notice postpones the time for withholding until the period beginning January 1 to April 30, 2021.

The withholding deferral applies only to individuals whose bi-weekly wages are less than $4,000. The notice clarifies that the determination of wages is made on a per pay period basis. Hence, an employee may qualify for deferral during one bi-weekly pay period and not another. In the event the employer does not pay employees on a bi-weekly basis, the employer will have to calculate the equivalent amount of the $4,000 limitation.

Although the presidential memorandum states that the Secretary of the Treasury “shall explore avenues” to eliminate the obligation to pay the deferred taxes, the IRS notice does not provide for forgiveness. Further, the law allowing the deferral of taxes during a declared state of emergency does not provide for, or allow, the forgiveness of taxes.

The notice states that an employer who defers the withholding of the social security/railroad retirement taxes from an employee must withhold and pay the deferred taxes from the employee ratably from wages/compensation paid between January 1 to April 30, 2021. If the employer fails to fully pay the deferred taxes by April 30, the employer will incur penalties and interest on the deferred taxes beginning May 1. Consider the effect of this if the employee leaves the job after December 31 or whose wages are insufficient to pay the deferred taxes. The employer will get stuck paying the employee’s share of taxes it never collected. Of course, the employer can pursue the employee for repayment of the taxes…good luck with that!

It is important to note several things about this deferral provision:

  1. The deferral does not apply to the employer’s share of social security taxes. The CARES act already provided for the deferral of the employer’s share of these taxes for the period March 27 to December 31, 2020 and those rules are to be followed for these taxes. See
  2. The deferral does not apply to the employer’s requirement to withhold income taxes from the employee. This requirement is governed by 26 USC 3401 and not covered by the memorandum or notice.
  3. The deferral does not apply to self-employed individuals. The requirement to deposit self-employment taxes is governed by 26 USC 1401.
  4. It is unclear whether the deferral is optional or mandatory. If the deferral is optional, is it at the option of the employer or the employee? Since the risk/burden of the deferral falls on the employer, it is to the benefit of the employer to opt out of the deferral if such opt out is available. If an employer does not defer the taxes, does an employee have any rights to demand deferral? All unanswered questions. Makes me happy I have no employees!

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