Presidential Payroll Deferral Program

August 31, 2020 Advisory

Pursuant to the Presidential Memorandum issued Aug. 8, 2020, a payroll tax deferral program (program) is available for employers that are required to withhold and pay the 6.2% employee portion of Social Security tax. Deferral is allowed for wages or compensation paid (generally all amounts paid for employment) from Sept. 1, through Dec. 31, 2020. Only employees earning, on a pre-tax basis, less than $4,000 biweekly are eligible for the program, with eligibility determined on a payroll-to-payroll-period basis. The deferral is optional, not mandatory for employers. If an employer does choose to participate in the program, existing guidance is unclear whether an eligible employee may choose to opt out.

Deferred taxes must be withheld and paid between Jan. 1, and April 30, 2021. In other words, double withholding of the 6.2% employee portion of Social Security tax will be required next year. In addition, interest and penalties will begin on May 1, 2021, for amounts not repaid by that date. An employer, however, “may make arrangements to otherwise collect” the deferred tax from its employees, though no specifics have been provided with respect to this option for an employer.

Some members of Congress have expressed an intention to challenge the legality of the Presidential Memorandum.

Recent Internal Revenue Service (IRS) guidance does not address what should be done if an employee ceases to be employed by an employer participating in the program before the deferred taxes have been repaid in 2021.  One possibility would be to recoup all the deferred taxes from a former employee’s final paycheck. Yet, it is unclear whether this action would be permitted.

In light of the IRS’s limited guidance, before signing on for the program, an employer should consider a number of pertinent questions. First, will the payroll tax deferral provide a meaningful economic benefit to employees? Since deferred taxes will have to be repaid in January through April 2021 by withholding twice the normal amount, employees could face financial hardship next year. What administrative challenges would be involved in implementing the program? For instance, would implementation require reprogramming payroll systems and notifying employees of the impact of these changes for the remainder of 2020 and early in 2021? Can employees opt out of program participation at any time during the remainder of 2020?

Given the significant ambiguity involved from the employer’s perspective, we therefore recommend that most employers SHOULD NOT participate in the program at this time. If you, as an employer, choose not to participate in the program and continue collecting and remitting all payroll taxes as usual, we recommend that you ensure that your employees understand that due to questions regarding the legality of the Presidential Memorandum, the lack of clarity in implementing, and the fact that the deferred taxes MUST be repaid, your payroll practices have not changed.

Please contact us if you should have additional questions about the program.

Contact Us
  • Worldwide
  • Boston, MA
  • Chicago, IL
  • Denver, CO
  • Dublin, Ireland
  • Edwardsville, IL
  • Jefferson City, MO
  • Kansas City, MO
  • Las Vegas, NV
  • London, England
  • Miami, FL
  • New York, NY
  • Orange County, CA
  • Philadelphia, PA
  • Princeton, NJ
  • Salt Lake City, UT
  • St. Louis, MO
  • Washington, D.C.
  • Wilmington, DE
abstract image of world map
Boston, MA
800 Boylston St.
30th Floor
Boston, MA 02199
Google Maps
Boston, Massachusetts
Chicago, IL
100 North Riverside Plaza
Suite 1500
Chicago, IL 60606-1520
Google Maps
Chicago, Illinois
Denver, CO
4643 S. Ulster St.
Suite 800
Denver, CO 80237
Google Maps
Denver, Colorado
Dublin, Ireland
Fitzwilliam Hall, Fitzwilliam Place
Dublin 2, Ireland
Google Maps
Edwardsville, IL
115 N. Second St.
Edwardsville, IL 62025
Google Maps
Edwardsville, Illinois
Jefferson City, MO
101 E. High St.
First Floor
Jefferson City, MO 65101
Google Maps
Jefferson City, Missouri
Kansas City, MO
2345 Grand Blvd.
Suite 1500
Kansas City, MO 64108
Google Maps
Kansas City, Missouri
Las Vegas, NV
7160 Rafael Rivera Way
Suite 320
Las Vegas, NV 89113
Google Maps
Las Vegas, Nevada
London, England
Royal College of Surgeons of England
38-43 Lincoln’s Inn Fields
London, WC2A 3PE
Google Maps
Miami, FL
355 Alhambra Circle
Suite 1200
Coral Gables, FL 33134
Google Maps
Photo of Miami, Florida
New York, NY
7 Times Square, 44th Floor
New York, NY 10036
Google Maps
New York City skyline
Orange County, CA
19800 MacArthur Boulevard
Suite 300
Irvine, CA 92612
Google Maps
Philadelphia, PA
2005 Market Street
29th Floor, One Commerce Square
Philadelphia, PA 19103
Google Maps
Philadelphia, Pennsylvania
Princeton, NJ
100 Overlook Center
Second Floor
Princeton, NJ 08540
Google Maps
Princeton, New Jersey
Salt Lake City, UT
222 South Main St.
Suite 1830
Salt Lake City, UT 84101
Google Maps
Salt Lake City, Utah
St. Louis, MO
7700 Forsyth Blvd.
Suite 1800
St. Louis, MO 63105
Google Maps
St. Louis, Missouri
Washington, D.C.
1717 Pennsylvania Avenue NW
Suite 400
Washington, DC 20006
Google Maps
Photo of Washington, D.C. with the Capitol in the foreground and Washington Monument in the background.
Wilmington, DE
1007 North Market Street
Wilmington, DE 19801
Google Maps
Wilmington, Delaware