September 14, 2020

IRS Releases Guidance On President’s Payroll Tax Holiday

The U.S. Internal Revenue Service (IRS) recently released new guidance on President Donald Trump’s August 8 executive order that allows for the temporary deferral of the employee portion of the payroll tax.

As Connecting the Dots reported previously, the president’s order directed the U.S. Treasury secretary to “defer the withholding, deposit and payment” of the employee’s share of the federal payroll withholding tax from September 1, 2020 through December 21, 2020 for individuals who earn less than $4,000 pre-tax in each bi-weekly pay period. According to the recently-release guidance, employers would be responsible for collecting and remitting any deferred payroll taxes with the amounts collected in equal installments from an employee’s wages between January 1, 2021 and April 30, 2021.

The guidance also:

  • Makes the program voluntary for employers;
  • Does not have any language giving employees the right to choose whether or not to participate, leaving the decision on whether to do so solely with employers;
  • Would apply the tax deferral to biweekly wages of $4,000 or less, calculated on a pay period basis, apparently obligating the employer to determine for which pay periods the tax could be deferred if an employee’s pay was over $4,000 in some pay periods but under $4,000 in others;
  • Requires the employer to withhold and pay any 2020 taxes deferred under this program beginning on January 1-April 30, 2021, resulting in employees paying double the payroll tax for those four months;
  • Leaves unanswered the question of how an employer handles the deferred taxes from an employee who has left the company, other than stating that “if necessary, the Affected Taxpayer may make arrangements to otherwise collect the total Applicable Taxes from the employee;” and
  • Leaves unanswered the question of who is responsible if an employer is unable to collect the deferred taxes from a former employee.

The guidance is available here. A summary from the U.S. Chamber of Commerce is here.

As a reminder, on August 18, the Metals Service Center Institute, along with the National Association of Manufacturers, the U.S. Chamber of Commerce, and more than two dozen other trade associations, sent a letter to U.S. Treasury Secretary Steve Mnuchin, U.S. Senate Majority Leader Mitch McConnell (R-Ky.), and U.S. House Speaker Nancy Pelosi (D-Calif.) asking that they provide clarity on President Donald Trump’s recent executive orders allowing for the temporary deferral of the employee’s portion of the payroll tax. Click here for more information and to read the letter.