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Employee Payroll Tax Withholding Deferral

Summary of Employee Payroll Tax Withholding Deferral Program

On August 8, 2020, President Trump issued a Presidential Memorandum directing the Secretary of the Treasury (Secretary) to use his authority pursuant to Section 7508A of the Internal Revenue Code (Code) to defer the withholding, deposit, and payment of certain payroll tax obligations.  Accordingly, the Secretary determined that employers that are required to withhold and pay the employee share of social security tax under Code section 3102(a) are affected by the COVID-19 emergency for purposes of the relief described in the Presidential Memorandum (Affected Taxpayers).  For Affected Taxpayers, the due date for the withholding and payment[1] of the tax imposed by Code section 3101(a), and so much of the tax imposed by Code section 3201 as is attributable to the rate in effect under Code section 3101(a), on Applicable Wages, as defined below, (collectively Applicable Taxes) is postponed until the period beginning on January 1, 2021 and ending on April 30, 2021. [1] The deposit obligation for employee social security tax does not arise until the tax is withheld.  Accordingly, by postponing the time for withholding the employee social security tax, the deposit obligation is delayed by operation of the regulations.

Applicable Wages

For purposes of this payroll tax withholding deferral program, Applicable Wages means wages as defined in Code section 3121(a) or compensation as defined in Code section 3231(e)[2] paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020, but only if the amount of such wages or compensation paid for a bi-weekly pay period is less than the threshold amount of $4000, or the equivalent threshold amount with respect to other pay periods.  The determination of Applicable Wages is made on a pay period-by-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 that amount is considered Applicable Wages for the pay period, and the relief provided in the Secretary’s notice applies to these 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.

Payment of Deferred Applicable Taxes

An Affected Taxpayer must withhold and pay the total Applicable Taxes that the Affected Taxpayer deferred under this notice 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, with respect to any unpaid Applicable Taxes.

IMPORTANT: The Secretary’s notice specifically states: If necessary, the Affected Taxpayer may make arrangements to otherwise collect the total Applicable Taxes from the employee.

Employer Considerations Regarding Implementation

  • Treasury Department guidance to date indicates that the President’s Memorandum and the related notice from the Secretary do not make the employee payroll tax withholding deferral mandatory; but rather, allow implementation to be optional with the employer
  • There could be a double withdrawal from employees’ paychecks in 2021 which would be a significant burden on employees if Congress does not enact forgiveness
    • Note: The President’s Memorandum directs the Secretary to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to implementation of [the] memorandum”
  • Employers electing to implement the program will need to get their systems revised to address the deferral period for 2020 and the subsequent “double withdrawal” period in 2021
  • Employers should consider the potential of employees who may leave between September and the end of the year and how the recoupment of the tax amounts deferred will be handled (See Section III below)
  • Employers need to decide whether to opt-in

Pennsylvania, Ohio, and West Virginia Law on Permissible Deductions or Withholdings from an Employee’s Final Paycheck

In the event an employer opts-in to the deferral program and an affected employee leaves before the end of the year, can an employer in Pennsylvania, Ohio or West Virginia recoup the tax repayment amount from the employee’s final paycheck for purposes of making the timely tax payment in 2021? YES.

  • Pennsylvania: PA Admin. Code Ch. 34, Sec. 9.1
  • Ohio: OH Stat. Sec. 5747.06
  • West Virginia: WV Code Sec. 21-5-1 et seq.

Again, as noted above, the Secretary’s notice specifically states: If necessary, the Affected Taxpayer may make arrangements to otherwise collect the total Applicable Taxes from the employee. This provision in the Secretary’s notice supports action by an employer to be able to recoup the deferred tax payment amount from the employee.

As an additional protective measure, an employer electing to opt-in to the deferral program can get authorization in writing from each affected employee authorizing the employer to make the appropriate withdrawal(s) from their paycheck(s) in 2021 or their final paycheck, if necessary. Such written authorization from an employee is acknowledged under Pennsylvania, Ohio and West Virginia law.


[1] The deposit obligation for employee social security tax does not arise until the tax is withheld.  Accordingly, by postponing the time for withholding the employee social security tax, the deposit obligation is delayed by operation of the regulations.

[2] Because Applicable Wages are defined as wages as defined in section 3121(a) and compensation as defined in section 3231(e), any amounts excluded from wages or compensation under these sections are not included when determining Applicable Wages.