On Aug. 28, 2020, the U.S. Department of Treasury and the Internal Revenue Service (IRS) issued Notice 2020-65 (the Notice). The Notice implements President Donald Trump’s Aug. 8, 2020 directive (the Directive) to defer withholding, deposit, and payment of the 6.2 percent employee share of Social Security tax and railroad retirement equivalent tax on certain wages and compensation paid to employees. Under the Notice, withholding and payment of the specified taxes may only be postponed for employees with wages or compensation less than $4,000 per bi-weekly payroll period, or the equivalent amount for other periods, and eligibility for deferral is determined on a pay period-by-pay period basis. The deferral is considered a postponement due to a disaster declaration, and remains optional for employers.

The deferred taxes on eligible wages and compensation paid from Sept. 1, 2020, to Dec. 31, 2020, must be withheld ratably from wages and compensation paid from Jan. 1, 2021, to April 30, 2021, and remitted at that time. The deferred taxes will begin to accrue interest, penalties, and additions to tax beginning May 1, 2021, and employers are liable for deferred taxes not paid by that date. The Notice only permits a deferral of the employee’s share of the 6.2 percent Social Security tax and equivalent railroad retirement tax, and does not affect withholding of Medicare taxes, state, or federal income taxes. Employers may also be eligible for a separate deferral of the 6.2 percent employer’s share of the Social Security tax through Dec. 31, 2020, under the CARES Act, Public Law 116-136, to Dec. 31, 2021 and Dec. 31, 2022, subject to certain limitations.

Only Congress can forgive the tax, which has not happened. From Jan. 1, 2021 to April 20, 2021 employers who elected to defer withholding and payment of the tax may need to double the tax withheld from the wages or compensation of their employees who had the tax deferred. The Notice gives employers flexibility in determining how to collect the tax from employees prior to the April 30, 2021 payment deadline, if necessary.

The Notice leaves several questions unanswered in deciding whether and how to implement this deferral.