Treasury issues guidance on Trump administration's payroll tax deferral program

In early August 2020, the Trump administration issued an Executive Memorandum on the deferral of employee payroll tax obligations because of the pandemic. On August 28, the U.S. Treasury Department issued Notice 2020-65 providing employers with information on several aspects of the program. Here are the highlights.

Only specified payroll taxes may be deferred

Employers may defer the withholding, deposit, and payment of the 6.2 percent payroll tax on employee wages and the equivalent amount under the Railroad Retirement Tax Act (RRTA). The program is a deferral of taxes, not a forgiveness. It applies to taxes on wages paid during the period beginning September 1, 2020, and ending December 31, 2020.

Employers apparently can choose whether to implement deferral

The notice doesn't state clearly whether employers must implement the payroll tax deferral, but it relies on Section 7508A of the Internal Revenue Code. Under that section, the IRS can postpone various deadlines but can't prohibit the withholding and payment of taxes. Consistent with that limited scope, the notice describes the guidance as "allowing" deferral and being "available" to employers.

The notice applies to employers, not employees. Therefore, it appears the IRS didn't intend to grant employees the right to choose whether to defer tax withholding, deposit, and payment. That said, the notice doesn't expressly prohibit or allow an employer inclined to implement the deferral from letting individual employees choose whether to have their share of the payroll tax deferred.