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Update on Presidential Memorandum for Deferring Payroll Tax Obligations



Rödl & Partner Tax Matters Vol 2020 – 11 published September, 25 2020 and updated on January 28, 2021

As previously discussed in Rödl Tax Matters Volume 2020 – 10, on August 8, 2020, President Trump signed a Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, which directed the Secretary of the Treasury to use his authority to defer the withholding, deposit, and payment of 
employee Social Security taxes on wages or compensation paid during the period of September 1, 2020, through December 31, 2020.

On August 28, 2020, Treasury issued Notice 2020-65 which postpones the due date for withholding, deposit, and payment of the employee-side Social Security taxes if, among other things, the following criteria are met:
  • Are incurred during a pay period in which the employee earned less than the equivalent of a $4,000 bi-weekly paycheck on a pre-tax basis
  • Are incurred for pay periods September 1, 2020 through December 31, 2020

The withholding and payment of these taxes is deferred until 2021 and must be paid ratably between January 1, 2021 and April 30, 2021. The Notice also authorizes employers “if necessary” to “make arrangements to otherwise collect the total Applicable Taxes from the employee.”
On December 27th, the Consolidated Appropriations Act was signed into law and consequently the deferral of withheld taxes was extended to December 31, 2021.

Many questions remain unanswered as the Notice does not address a number of issues including the following:
  • What happens if the employment relationship terminates before the deferred amounts are paid?
  • What “other arrangements” may the employer make to collect the taxes?
  • Can employees opt out of the deferral program?
  • Can an employer require that employees opt-out?
  • How are wages and compensation defined?
As stated previously, a key consideration in deciding whether to implement the deferral is that absent action from Congress, the deferred amount will need to be repaid in 2021.  A further consideration is whether forgiveness of the amounts deferred, if enacted, will depend upon an actual deferral of the taxes.
Unfortunately, the Notice did little to provide further guidance and we do not anticipate further guidance at this time.

If there are any questions, please contact your local Rödl & Partner representative.

This publication contains general information and is not intended to be comprehensive or to provide legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Consult your advisor.

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Any tax and/or accounting advice contained herein is based on our understanding of the facts, assumptions we have been asked to make, and on the tax laws and/or accounting principles in effect as of the date of this advice. No assurance is given that the conclusions would be the same if the facts or assumptions change, or are not as we understand them, or that the tax laws and/or accounting principles will not change subsequent to the issuance of these conclusions. In addition, we do not undertake any continuing obligation to advise on future changes in the tax laws and/or accounting principles, or of the impact on the conclusions herein.

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