COVID-19 Payroll Tax Notice from the IRS Offers Sparse Guidance

Federal Tax Alert

Client Alert


Following the August 8, 2020 Presidential Memorandum directing the Treasury Secretary to defer the withholding, deposit, and payment of certain payroll taxes, the Internal Revenue Service released Notice 2020-65 late Friday, August 28. The brief notice gives necessary but sparse guidance on implementing the Presidential Memorandum. We expect (and hope for) further guidance soon.

Employers now have the option of deferring the withholding and remittance of the employee’s Social Security tax from their paychecks for the period September 1 through December 31, 2020. The Social Security tax equals 6.2% of the employee’s wages. The option to withhold/remit the employee’s share of the Social Security tax, however, will only apply if the employee earns less than $4,000 every two weeks, or approximately $104,000 a year. For a minimum wage earner at $7.25 per 40-hour week, the withheld Social Security tax would be equal to roughly $36 every two weeks.

Although the withholding, deposit, and payment of the employee’s Social Security tax for this four-month period is deferred, the tax itself will nevertheless be owed. The notice clarifies that any taxes deferred will be due and payable during the period January 1, 2021 through April 30, 2021, and implies that it should be withheld and remitted ratably over that period. In essence, unless the tax is forgiven by subsequent legislation, as President Trump promises if he is re-elected, the employer may be forced to withhold and remit twice the normal amounts (i.e., 12.4% of wages) during that period. That could place the employee in a personal cash flow crunch.

The Presidential Memorandum was intended to provide temporary assistance to both employers and employees while a new economic relief bill is stalled in Congress. With the IRS’s notice on how to implement this plan, there are still several open questions that will likely make it less than desirable for employers to implement the deferral or for employees to want the deferral. There is no clear guidance in the new notice whether an employer or an employee can opt-out of the deferred withholding program to avoid a scenario such as the one described above. However, Treasury Secretary Steven Mnuchin stated recently regarding the payroll tax deferral, “We can't force people to participate.” To illustrate, what if the employer wishes to opt-in to the program but one or more otherwise eligible employees don’t wish to participate? The notice defines the “Affected Taxpayer” as the employer, not the employee, or both. Thus, it appears that the employer is the sole decision-maker, although it may be wise, from the perspective of maintaining good employer-employee relations, to allow otherwise eligible employees to opt-out in writing for stated reasons.

Additionally, if a current employee leaves the company during the recapture period, there is a question as to liability and payment since the (former) employee won’t have wages from which to “recoup” the tax; the employer will very likely be responsible for remitting the deferred amount to the IRS even if not collected.

Finally, the notice reminds employers if they opt-in to the program and therefore don’t withhold and remit the employee’s Social Security tax during the next four months, but for whatever reason (e.g., cash flow issues) they don’t remit the deferred taxes before April 30, 2021, they will become subject to “interest, penalties and additions to tax....” That would potentially include personal liability for the “responsible persons” under IRC section 6672.

We will continue to provide guidance and updates on this topic as they develop. For example, prompt guidance is needed as to the impact of this program on employee leasing companies, including Certified Professional Employer Organizations, and revised Forms 941 and W-2 will be important as well.

For more information on COVID-19 and how it may be affecting your business, please visit our Coronavirus Disease 2019 resource page. For more information on the new notice or updates, please contact either of the authors of this alert or any other member of Bradley’s Tax Practice Group.


Bruce Ely is a partner of the firm, resident in its Birmingham office, while Bethany Breeze Davenport is an associate with the firm, resident in its Nashville office. They can be reached at and