Executive Order Payroll Tax Deferral- Here’s What We Know

On August 8, 2020, President Donald Trump signed an executive memorandum directing the U.S. Department of the Treasury to put in place payroll tax deferral obligations (Social Security and Medicare) amid the ongoing COVID-19 pandemic for wages paid to individuals between September 1, 2020 and December 31, 2020.

On August 28, 2020 (3 days prior to when it was to go into effect), the U.S. Treasury and IRS issued a notice to employers with “guidance” on implementation of the executive order.

This guidance was extremely limited and provided little practical information for employers to use to implement such deferrals in a timely fashion. We do know this much:

1. Any deferred tax payments would need to be recouped from employees from January 1 - April 30, 2021 through a notice payment and not in the Form 941 or payment. If amounts are not paid back on May 1, 2021, then penalties and interest will be assessed to employers.
2. If an employee who deferred payroll taxes is terminated, then the employer can make arrangements with the terminating employee to recoup the deferred amount (since the employer will be responsible for repaying those deferrals).
3. The deferred amount will need to be reported on Form 941 on lines 13b and 24. Additional guidelines will be coming out on this.
4. The deferred amount will be need to be reported on the W-2 form in box 3. As above, additional guidelines will be forthcoming.

Given the limited guidance from the IRS and the U.S. Treasury, the limited time given to implement this provision, and the fact that this deferment would have to be repaid, most employers are opting out of the deferment. In fact, the American Payroll Association is unofficially recommending that employers “continue as normal” at this time. This information is based on social media posts from the current APA President Elect, Bruce Phipps.

In addition, Microsoft’s tax regulatory update website has the following note:

"There will be no update to Microsoft Dynamics GP for the Payroll Tax Deferral (Notice 2020-65) released on August 28. This is because the IRS has not published new tax table changes for the deferral. Also the deferral is optional for employers to implement. Any questions regarding the regulation of the tax deferral should be directed to a tax attorney or tax accountant."

One possible insight for employers interested in providing the deferments: The GPUG.com Communities Open Forum page has a thread on Payroll Tax Deferral that includes a possible solution.

The lack of clarity and the lack of definitive answers around ongoing questions make it difficult for us to suggest solutions or provide sound guidance for employers interested in making the deferment available. Stay tuned to this blog for further updates and information as they become available.