In addition to Notice 2020-65 and Instructions to Form 941 which we outlined in our recent blog, the IRS Office of Chief Counsel for employee benefits, exempt organizations and employment tax provided informal but insightful guidance on its monthly IRS payroll industry call held on September 3, 2020. The informal guidance was directed in part toward clearing up confusion that remained even after the IRS’s issuance of Notice 2020-65 over whether, or to what extent, employers could simply ignore the “payroll tax holiday” created by the President’s August 8, 2020, Executive Order.
Helpfully, the IRS Office of Chief Counsel affirmed that employers have the sole discretion to decide whether to participate in the “payroll tax holiday.” That discretion is significant because an employer that opts-in to the “payroll tax holiday” remains liable for Social Security withholding tax that it does not recoup from employees by April 30, 2021.
Salient questions answered by the IRS Office of Chief Counsel include the following:
Are employers required to delay employee Social Security tax withholding pursuant to the Notice?
The IRS Office of Chief Counsel confirmed that the IRS has no statutory authority under Internal Revenue Code 7508A to require employers to postpone the deadline for withholding Social Security taxes.
Are employers required to delay employee Social Security tax withholding pursuant to the Notice if an employee requests it?
The IRS Office of Chief Counsel clarified that employers are not required to delay employee Social Security tax even if an employee requests it, because the Notice 2020-65 designates employers as “affected taxpayers,” thereby allowing only employers to disregard the withholding deadline.
Can the employer force all employees to participate, or does it have to solicit consents from employees?
The IRS Office of Chief Counsel noted that employers have flexibility in how they choose to implement the postponement of Social Security tax withholding, including either forcing all employees to participate, or soliciting their consent.
Are employers liable for Social Security withholding tax that it does not recoup from employees in the period January 1, 2021, to April 30, 2021?
The IRS Office of Chief Counsel confirmed that employers remain liable for Social Security taxes they do not withhold from employee wages and compensation that are under their control.
Do employers have to recoup the Social Security tax withholding from employees in 2021 in the same amounts in which they were deferred in 2020?
The IRS Office of Chief Counsel clarified that employers would recoup the Social Security tax withholding ratably from wages and compensation paid between January 1, 2021, and April 30, 2021. If employers are not in the position to ratable recoup Social Security tax withholdings, the Notice gives employers the flexibility of using other arrangements to collect the Social Security taxes owed from employees.
If an employee earns on average more than $104,000 for 2020, are they still potentially eligible for the Social Security tax withholding postponement?
The IRS Office of Chief Counsel clarified that the determination of applicable wages is made on a “pay period-by-pay period basis … irrespective of the amount of wages or compensation paid to the employee for other pay periods.”
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This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.