UPDATE: Treasury Department Issues
Employee Payroll Tax Deferral Guidance

Late on Friday, August 28, 2020, the U.S. Department of Treasury released limited guidance implementing President Trump’s August 8th executive order that sought to defer employee Social Security payroll tax withholdings for employees earning less than $4,000 every two weeks, between September 1 and December 31, 2020 (see CAPLAW News Flash: Executive Order Defers Employee Payroll Taxes – Or Does It?).

Notice 2020-65 (the “Notice”) clarified that employers shall decide whether to defer those payroll tax withholdings, and employers that do so must withhold and pay any deferred taxes between January 1, 2021 and April 30, 2021. In other words, the deferred taxes are not cancelled or forgiven. Thus, if a CAA chooses to defer payroll tax withholdings from employee compensation between September 1 and December 31, 2020, the CAA will need to adjust those employees’ withholdings between January 1 and April 30, 2021 to pay the deferred amounts (in addition to any Social Security taxes owed on compensation paid during the first four months of 2021), resulting in lower employee net pay. Interest and penalties will begin to accrue on unpaid deferred payroll taxes on May 1, 2021.

Despite the Notice, many questions remain for employers, including:

• Whether employees must consent to the deferral?
• Whether deductions for deferred taxes are permitted under state laws which may restrict what an employer may deduct, particularly if the deductions reduce earnings below minimum wage?
• How to deduct deferred taxes if an employee is on unpaid leave (such as FMLA)?
• What happens if an employee whose employer elected to defer taxes stops working for that employer before the deferrals are repaid in 2021?

Given the outstanding questions and potential administrative burden and liability for employers, it is unlikely at this point that CAAs will find it beneficial to take advantage of this employee payroll tax deferral.

This News Flash is part of the Community Services Block Grant (CSBG) Legal Training and Technical Assistance (T/TA) Center. It was created by Community Action Program Legal Services, Inc. (CAPLAW) in the performance of the U.S. Department of Health and Human Services, Administration for Children and Families, Office of Community Services Cooperative Agreement – Grant Award Number  90ET0467-03-02. Any opinion, findings, conclusions, or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the U.S. Department of Health and Human Services, Administration for Children and Families.

The contents of this news flash are intended to convey general information only and do not constitute legal advice. Any communication through this publication or through CAPLAW’s website does not constitute or create an attorney-client relationship. If you need legal advice, please contact CAPLAW or another attorney directly.