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On Friday, in response to an August 8, 2020 Presidential Memorandum, Treasury issued Notice 2020-65 which defers the due date for withholding, deposit and payment of employee-side taxes imposed under Section 3101(a) (FICA) and corresponding taxes under Section 3201 (RRT). This deferral is effective September 1!
No doubt this Notice will be the subject of fierce political debate. The day of the Notice’s release, Congressman Don Beyer of Virginia fired a first shot across the bow. In a press release, the Congressman accused the deferral of being a “gimmick” that “could hit thousands with unanticipated large tax bills next year.” There are layers of political and tax policy arguments both in favor of and against the deferral. But more immediately relevant to many employers are the practical ramifications of the Notice to the employer’s payroll practices and related legal obligations.
A few things are clear from the Notice. The deferral potentially applies to employees that earn less than the equivalent of a $4,000 bi-weekly paycheck on a pre-tax basis, and applies to pay periods September 1, 2020 through December 31, 2020. Setting aside whether the deferral will ultimately benefit workers and add liquidity to the economy, the deferral program has the potential to create substantial compliance burdens that employers are not immediately equipped to handle. Further, the threshold income-level applies per pay period, which may exacerbate the challenge in quickly modifying payroll systems to accomplish the deferral. Also clear is that the deferred taxes are to be paid ratably during the first four months of 2021, unless the deferred taxes are forgiven under future legislation. In theory, qualifying employees would receive an approximately 6.2% increase in their remaining paychecks for 2020, and then, unless the deferred taxes are forgiven, they would generally experience a commensurate decrease in their paychecks from January 1, 2021 through April 2021.
But the Notice leaves many unanswered questions. For more information about Notice 2020-65 and the issues that employers should be thinking through, here is the Chamberlain Hrdlicka Tax Client Alert - https://www.chamberlainlaw.com/news-news-tax_update-payroll_tax_deferral_starting_september_1.html.