On August 8, 2020, President Trump issued an Government Order titled “Memorandum on Deferring Payroll Tax Obligations in Mild of the Ongoing COVID-19 Catastrophe” (the “Order”). The Order directs the Secretary of the Treasury to allow deferral of worker Previous Age, Survivors and Incapacity Insurance coverage (“OASDI”) taxes for payroll dates on and after September 1, 2020 by means of December 31, 2020.
The Order was the topic of a previous Blogpost on August 11, 2020. That Put up reviewed many authorized and sensible considerations related to making an attempt to implement the Order. It additionally emphasised that the Secretary of Treasury was to concern steerage on easy methods to implement the Order.
On August 28, 2020, the IRS issued Discover 2020-65 to supply lengthy awaited steerage in relation to the Order. This Put up summarizes the steerage in Discover 2020-65, and remaining authorized and sensible points pertaining to the Order.
IRS Discover 2020-65
As an preliminary matter, it is very important perceive that neither the Order, nor IRS Discover 2020-65, require an employer to defer the cost of worker OASDI taxes. Thus, an employer could select to proceed to withhold and deposit worker OASDI taxes as standard.
As is mentioned beneath, Discover 2020-65 doesn’t appear to alleviate any of the authorized and sensible considerations related to implementation of the Order. Thus, we consider that almost all employers will select to proceed to withhold and deposit worker OASDI taxes as standard.
Tax Deferral, Not Forgiveness
First, the Order makes it clear that cost of the worker OASDI tax is just deferred, not forgiven. Thus, merely put, workers are nonetheless obligated to pay the taxes. Accordingly, if an employer does elect to defer cost of an worker’s OASDI taxes, Discover 2020-65 requires the employer to withhold and pay these deferred taxes later.
Subsequent Deduction and Fee of the Deferred Taxes
Discover 2020-65 states that from January 1, 2021 to April 30, 2021, the employer should “ratably” deduct any deferred worker OASDI taxes from the wages paid to the worker, and pay them over to the IRS. If these deductions and funds should not made, penalties and curiosity will start to accrue on the unpaid taxes on Could 1, 2021.
It’s troubling to suppose that an employer could incur penalties and curiosity for failing to ratably deduct and pay over the deferred worker OASDI taxes within the first 4 months of 2021. Nothing in Discover 2020-65 gives any particular reduction to an employer if there are circumstances that stop the employer from doing so.
Particularly, Discover 2020-65 doesn’t deal with what an employer ought to do if the worker terminates employment, has a go away of absence, or in any other case doesn’t have enough wages in 2021 to perform the required deductions for the beforehand deferred worker OASDI taxes.
Discover 2020-65 merely states that, whether it is mandatory, the employer “could make preparations to in any other case accumulate” the deferred taxes from the worker. Other than the worker writing a test to the employer, it’s not clear to us how an employer is meant to in any other case organize for the tax to be paid by a former worker, an worker on a go away of absence, or an worker with inadequate wages.
The Most Wage Limitation
The Order states that deferral of worker OASDI taxes is to be restricted to workers with bi-weekly pay of lower than $4,000 on a pre-tax foundation, with applicable changes made for different payroll durations (the “Most Wage Limitation”). It’s unclear within the Order how the deferral rule is meant to work if an worker’s pay could also be fluctuating above and beneath the Most Wage Limitation.
Discover 2020-65 definitively addresses this query. The Most Wage Limitation is individually decided for every worker in every payroll interval. Whereas it’s good to have clear steerage on this level, it could be troublesome to implement that sort of fluctuating restrict inside an employer’s present payroll system. Discover 2020-65 gives no choices to an employer.
Different Authorized Issues
There are not less than two different tax-related authorized considerations that Discover 2020-65 doesn’t deal with.
Inner Income Code (the “Code”) Part 3102 typically obligates an employer to withhold an worker’s social safety taxes. If an employer fails to take action, the employer could also be held responsible for the taxes not withheld, as properly numerous kinds of penalties. No reduction is offered in Discover 2020-65 to an employer that defers cost of an worker’s OASDI tax, if the employer can not accumulate the deferred taxes later. Presumably, if an employer finds itself in that bind, the employer is obligated to pay the tax.
Code Part 6672 has what is often referred to as a “accountable particular person” penalty. This penalty can apply if an employer deducts quantities from an worker’s wages for worker social safety taxes and/or revenue tax withholding, and the employer then fails to pay these quantities over to the IRS. In that case, the person who’s accountable (e.g., a CFO) will be held personally responsible for the withheld taxes that weren’t paid over to the IRS. Discover 2020-65 doesn’t present any reduction in relation to the potential software of the accountable particular person penalty underneath Code Part 6672.
Our August 11, 2020 Put up reviewed many troublesome authorized and sensible considerations that will come up if an employer ought to determine to attempt to implement the Order. As is mentioned above, IRS Discover 2020-65 does nothing to alleviate these considerations. Thus, we anticipate that almost all employers will discover essentially the most sensible and prudent plan of action to be to proceed to withhold and pay the staff’ OASDI taxes in a well timed trend.
 See https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/)
 See https://www.employmentlawworldview.com/executive-order-regarding-payroll-taxes-us/
© Copyright 2020 Squire Patton Boggs (US) LLPNationwide Regulation Assessment, Quantity X, Quantity 244