On Friday, August 28, the Internal Revenue Service issued Notice No. 2020-65, providing guidance on President Trump's Executive Order authorizing a payroll tax deferral for the period from September 1, 2020 to December 31, 2020. Under the Executive Order, an employer can choose to suspend the withholding and payment of the employee portion of Social Security taxes (Old Age, Survivors, and Disability Insurance or OASDI), but not the employer's portion. President Trump has stated that if he is re-elected, he will ask Congress to waive repayment of the deferred taxes.

Employers are not required to suspend withholding of OASDI taxes under the Executive Order, because only Congress has the authority to change the tax code. Therefore, under current law, the IRS guidance notes that the deferred taxes must be paid by employers during the period from January 1, 2021 to April 30, 2021, after which interest and penalties may accrue. In other words, in addition to withholding the regular Social Security tax from employees' wages from January to April 2021, the IRS guidance notes that employers participating in the tax deferral should withhold from employees' paychecks an additional amount attributable to the deferral, or "may make arrangements to otherwise collect the total Applicable Taxes from the employee."

The tax deferral applies to the pretax wages earned by an employee during any biweekly pay period from September 1st to December 31, if those wages are less than $4000. The determination of eligibility is based on each pay period beginning September 1 and ending December 31, 2020. This means that if an employee makes less than $4000 during one biweekly pay period, he/she would be eligible for tax deferral for that pay period, even though the employee makes more than $4000 during other pay periods.

Because the "double withholding" is likely to cause financial hardship to employees in 2021, on August 18, 2020, the US Chamber of Commerce and 30 industry groups wrote a letter to Congress and Treasury Secretary Mnuchin stating that "many of our members will likely to decline to implement deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law." In addition, many payroll processing companies noted that it would be extraordinarily difficult to implement the deferral given the short time frame. Before deciding whether to participate in the deferral, employers should ensure that they or their payroll provider are able to make the necessary changes.