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Department of Treasury Issues Guidance Regarding Payroll Tax Deferral

August 31, 2020

Overview

On August 28, 2020, the Department of Treasury (“Treasury”) responded to the White House’s Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster dated August 8, 2020 (the “Memorandum”) by issuing Notice 2020-65 (the “Notice”). The Memorandum provided for a limited employee payroll tax deferral for certain amounts paid to employees during the period September 1, 2020, to December 31, 2020; and required Treasury to issue guidance to implement the Memorandum. The Notice is Treasury’s response to the Memorandum’s guidance mandate.

The Notice is directed at employers, which are termed “Affected Taxpayers” in the Notice. The Notice concerns the withholding and payment of “Applicable Wages,” which is defined to mean wages and compensation paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020; however, this is limited to wages or compensation paid for a bi-weekly period that is less than $4,000. Moreover, that determination is made in each pay period; therefore, it is possible for an employee’s wages or compensation to meet this requirement in some pay periods but not others. Stated differently, failure to satisfy this requirement does not mean the employee is barred from this deferral for all or subsequent pay periods.

The Notice goes on to provide the Affected Taxpayer must withhold and pay the deferred payroll taxes “ratably from wages and compensation paid between January 1, 2021, and April 30, 2021.” Failure to do so can result in interest, penalties, and additions to tax starting on May 1, 2021. The Notice indicates the Affected Taxpayer may “make arrangements to otherwise collect” the deferred taxes from the employee.

The Notice leaves many questions unanswered, such as whether an Affected Taxpayer must make this available if a particular employee qualifies, and what an Affected Taxpayer might do in the event an employee is no longer employed by the Affected Taxpayer before the deferred taxes are remitted to the government. Perhaps in anticipation of those unanswered questions, the Notice ends by providing the following number for the Notice 2020-65 Hotline: (202) 317-5436.

For more information on this Notice, please contact Dan Eller, John Way, or Alee Soleimanpour, or your Schwabe attorney. We will be monitoring any additional developments concerning this payroll tax deferral.

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