The Internal Revenue Code (the "Code") provides the Secretary of the Treasury with the authority to delay tax deadlines in times of national emergency.

On August 8, 2020, President Trump issued an executive order directing the Secretary to use that authority to defer the withholding, deposit, and payment of certain payroll tax obligations. On August 28, 2020, the IRS issued Notice 2020-65 (the "Notice"), which formally deferred the withholding and payment deadlines of the employee's share of Social Security taxes for the period from September 1, 2020, through December 31, 2020 (referred to as the "Deferral Program"). The Notice also provides some guidance on how the Deferral Program should be implemented. (The Deferral Program applies to employee taxes under both the Social Security and Railroad Retirement regimes; for simplicity, we only refer to Social Security taxes in this article, but the Notice's guidance applies equally to an employee's share of Railroad Retirement taxes.)

President Trump's executive order prompted a number of practical questions regarding the proposed Deferral Program. Unfortunately, the Notice is remarkably brief and fails to answer (or answer clearly) many questions. What follows is a list of key questions on what guidance the Notice offers.

Is the Deferral Program mandatory for employers?

Probably not, but the Notice does not say so specifically. The Notice provides that the "due date for the withholding and payment of the tax [related to the employee's share of affected Social Security taxes or Railroad Retirement taxes] is postponed until the period beginning on January 1, 2021 and ending on April 30, 2021."

On its face, this does not require an employer to defer the withholding or payment of the taxes but merely states that the due date for withholding and payment has been extended. This is similar to the IRS previously postponing the deadline for taxpayers to file their 2019 income tax return, in light of COVID-19. Many taxpayers (particularly those expecting a refund) went ahead and filed promptly, or by the original deadline, while other taxpayers took advantage of the extended deadline. Similarly, it seems that an employer could choose to take advantage of the Deferral Program, but it does not appear to be mandatory.

In addition, the press release that accompanied the Notice, available at the IRS on-line newsroom, states that the Deferral Program is a means of "allowing employers to defer withholding and payment" of the affected employees' payroll taxes, and that the Deferral Program "makes relief available for employers." This all supports the conclusion that participation in the Program is optional.

Would an employer be required to delay withholding payroll taxes under the Deferral Program if an employee requested or demanded that treatment?

Again, probably not, but the Notice fails to address the question. As described above, the postponed deadline for deferring payroll taxes is not a mandate but simply an extended due date that employers may choose to follow.

Also, the Notice expressly provides guidance for "Affected Taxpayers," defined as "employers that are required to withhold and pay the employee share of [Social Security] taxes." There does not seem to be any basis for employees to insist that their employers implement the Deferral Program.

If an employer decides to delay payroll taxes under the Deferral Program, when and how must the employer catch up on the deferred taxes?

The Notice states that an employer "must withhold and pay the total [taxes delayed under the Deferral Program] ratably from wages and compensation paid between January 1, 2021 and April 30, 2021 or interest, penalties and additions to tax will begin to accrue on May 1, 2021."

The fact that the eventual tax withholding needs to occur "ratably" and over the same approximate time period (four months) means that if an employee's Social Security taxes are deferred during the last four months of 2020, then that employee will be subject to twice the normal level of Social Security tax withholding during the first four months of 2021.

Can the recoupment of the taxes be further deferred?

In public comments after issuing the executive order, President Trump dangled the possibility of converting the tax deferral into permanent forgiveness, if he is re-elected. Legally, the President cannot make this tax law change and would need the cooperation of Congress. This raises the potential of some employees embracing the tax break for the balance of 2020, with the expectation of receiving permanent relief in 2021, only to face disappointment and a doubled Social Security tax bill for the first four months of 2021.

The Notice did provide: "If necessary, the [Employer] may make arrangements to otherwise collect the total [deferred taxes] from the employee." It is unclear exactly what this means.

One reading is that before committing to participate in the Deferral Program, an employer could require an employee to agree that any delayed Social Security taxes could be withheld from a final paycheck, if the employee terminates employment with the employer completing the required catch-up withholding. (Note: Employers should check with state employment laws regarding allowable withholdings from final paychecks before implementing this approach.)

Another possible reading is that if an employee had insufficient wages in 2021 to support recoupment of the deferred taxes, an employer could front the money for the employee in exchange for a commitment (such as an IOU) from the employee to pay the employer back.

Which wages are eligible for delaying an employee's share of Social Security taxes under the Deferral Program?

The Notice states that the Deferral Program applies to "Applicable Wages," which incorporates the definition of "wages" under the Code for purposes of applying Social Security tax withholding. Moreover, Applicable Wages only applies to these of wages with respect to (i) wages paid during the period beginning September 1, 2020, and ending on December 31, 2020, and (ii) "only if the amount of such wages or compensation paid for a bi-weekly pay period is less than the threshold amount of $4,000, or the equivalent threshold amount with respect to other pay periods." (Emphasis added.)

Stated another way, an employee is eligible for Social Security tax deferral if the employee's wages are less than $4,000 for a two-week pay period, or a functionally equivalent amount for a pay period of different duration (for example, less than $2,000 for a one-week pay period, less than $8,000 for a four-week pay period, etc.).

Note that the limitation states that the wages constitute Applicable Wages "only if" the amount of wages is less than the $4,000 threshold (or its equivalent). This means an employee whose paycheck is more than $4,000 for a bi-weekly pay period is ineligible for the Deferral Program, as opposed to applying the deferral up to the amount of wages just shy of the $4,000 threshold.

Is eligibility for the Deferral Program determined on a payroll-by-payroll basis, so that an employee with varying degrees of compensation (such as overtime) could be eligible for one payroll period, but not another?

Yes. The Notice states that the determination of Applicable Wages is made on a pay-period-by-pay-period basis: "If the amount of wages or compensation payable to an employee for a pay period is less than the corresponding pay period threshold amount, then the amount is considered Applicable Wages for that pay period, and the relief provided [under the Deferral Program] applies to those wages or that compensation paid to that employee for that pay period, irrespective of the amount of wages or compensation paid to the employee for other pay periods."

Although this is one of the few questions that the Notice unequivocally answers, the answer seems problematic and possibly unworkable. Most employers use some degree of automation in processing their payrolls, with larger employers having their payroll processes highly automated and administered by a software program or payroll administrator.

Given that the applicable software is already in place, it would be a tremendous challenge to revise the software to accommodate the potential for stepping in and out of Social Security tax withholding on a payroll-by-payroll basis for the balance of 2020.

What liability does an employer face if an employee's Social Security taxes are delayed under the Deferral Program, and then the employee terminates employment prior to the employer's recouping the delayed taxes?

As discussed above, on its face the Notice provides that an employer must withhold and pay the deferred taxes out of wages and compensation paid between January 1, 2021 and April 30, 2021. This suggests that if an employee were to terminate employment or otherwise not have wages and compensation during the first four months of 2021, the employer would not be in violation of its obligation under the Notice to "ratably [withhold] from wages and compensation paid" during the first four months of 2021.

However, although the affected employer would not be guilty of having failed to withhold during 2021, the Notice does not specifically relieve the employer from the liability that employers generally have under the Code for failing to withhold the requisite amount of payroll taxes. And as described in Q&A-4, the Notice provides: "If necessary, the [Employer] may make arrangements to otherwise collect the total [deferred taxes] from the employee."

Could this suggest that an employer has an affirmative duty to secure the recovery of deferred taxes from a former employee? This is a question that merits additional guidance from the IRS.

Is more guidance likely to be forthcoming?

The Notice did not specify whether further guidance should be expected. Given that the Deferral Program is first effective for wages earned starting September 1, 2020, further guidance will not be available as of the start of the Program. Notices from the IRS typically list the principal authors, which enables interested parties to contact them for clarification.

The Notice did not list the authors but provided a Notice "hotline," which is (202) 317-5436 (not a toll-free number). Calling the number leads to a recording that encourages callers to leave a message with their questions. (We have not yet heard back with respect to our questions.)

Does the Notice and Deferral Program change prior guidance related to recouping payroll tax credits under the Families First Coronavirus Relief Act (FFCRA) or payroll tax credits or the deferral of an employer's Social Security taxes under the Coronavirus Aid, Relief and Economic Security (CARES) Act?

No, but confusion would be understandable. As noted in prior advisories, FFCRA and the CARES Act enabled employers to claim tax credits for certain payments to employees and recoup those payments against future payroll tax payments.
In addition, the CARES Act enabled an employer to defer the payment of a portion of its payroll taxes over the next couple of years. Those programs are separate from the Deferral Program and are not affected by the Notice.


Although the promise of a decreased tax bill for the balance of 2020 is tempting, especially for employees struggling with economic setbacks and uncertainty related to COVID-19, the Deferral Program only kicks the tax burden down the road, which could generate even tougher problems for employees in 2021.

In addition, the specter of continued liability for employers with respect to deferred taxes owed by former employees is cause for serious concern. Employers should proceed very cautiously in exploring participation in the Deferral Program.


The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.

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