Guidance Needed On Payroll Tax Deferral

Earlier this month, President Trump issued an executive memorandum to allow the deferral of social security tax withholding from 2020 employee paychecks starting September 1, 2020.  The memo allows employees with biweekly income under $4,000 to increase their take-home pay by electing not to have the 6.2% social security tax withheld from their paychecks. 

The benefit is only temporary, though, because the memo only provides for a deferral of the tax.  Thus, the employees would have to repay the tax that wasn’t withheld, perhaps by having double withholding in early 2021.  This severely limits the benefit of making the election, and, in reality, the memo is a political challenge to Congress to pass a law forgiving the deferred tax.  It remains to be seen if Congress will do that.

As a further complication, the IRS has yet to issue comprehensive rules governing this process.  Without the rules, it is impossible to implement.  The IRS did issue guidance on August 28 confirming that the deferred taxes will be repaid through doubled withholding during the first quarter of 2021.  Treasury Secretary Steven Mnuchin also stated that employer participation in the deferral would not be mandatory, but this was not confirmed in the notice issued by the IRS.

Clearly, further guidance is needed.  DWD will monitor the situation and make the rules available as soon as they are passed.

Contributed By: Mark Westerhausen, CPA | Tax Director | DWD CPAs & Advisors