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Focus on Not-For-Profits: Deferral of Withholding and Payment of the Employee Share of the Social Security Tax

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Late on August 28th, the IRS issued additional guidance regarding the deferral of withholding and payment of the employee share of the Social Security tax as directed by President Trump on August 8th in a memorandum.  As a reminder, this memorandum does not change an employee’s underlying tax obligation but rather just defers the payment of this tax obligation.
September 1, 2020

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Late on August 28th, the IRS issued additional guidance regarding the deferral of withholding and payment of the employee share of the Social Security tax as directed by President Trump on August 8th in a memorandum. As a reminder, this memorandum does not change an employee’s underlying tax obligation but rather just defers the payment of this tax obligation.

Starting on September 1, 2020 and effective through December 31, 2020, Notice 2020-65 allows for deferral of the withholding and payment of the 6.2% employee payroll tax on wages or compensation less than $4,000 (pre-tax) per biweekly pay period. This deferral is available for any biweekly period in which an employee’s compensation is less than $4,000, regardless of whether the employee’s compensation exceeds that threshold in another biweekly period.  However, if compensation exceeds this threshold for a biweekly period, deferral is not possible in that period for that employee.

Employers that elect to participate in this deferral will resume the withholding and payment of both the employee’s deferred share of the Social Security withholding, as well as the employee’s share of the current FICA withholding tax on January 1, 2021. Through April 30, 2021, employers must withhold ratably from wages and compensation paid during this period both the current and previous withholding. Thus, any payroll taxes deferred from September 1, 2020 through December 31, 2020 will be recovered by the employer through excess employee withholdings from January 1, 2021 through April 30, 2020. The responsibility for collecting these previously deferred taxes appears to be placed on the employer, meaning not-for-profit organizations could be responsible for the liability of an employee if the employee is no longer employed by the organization in 2021. It should be noted that the Notice does allow the Employer to “make arrangements” with the employee to collect any deferred withholdings.

This deferral is not mandatory. Not-for-profit organizations should evaluate whether implementation is in their and their employees’ best interests. If you have any questions, please reach out to your RubinBrown team.

 

Readers should not act upon information presented without individual professional consultation.

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

 

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