September 9, 2020
EY survey results: Are employers participating in the employee Social Security tax deferral program?
On August 28, 2020, the IRS in Notice 2020-65 responded to a Presidential Memorandum (executive order) by giving employers the option1 to delay their withholding of the 6.2% employee share of Social Security and the comparable Railroad Retirement tax for certain employees from September 1, 2020, to December 31, 2020.
Our executive summary of the employee Social Security deferral is available here.
We performed an informal anonymous survey of employers to determine the level of their participation in this deferral program. Of the 420 total responses, close to 50% stated they will continue to withhold the Social Security tax from employees' wages and close to 50% indicated they are waiting on more IRS guidance before deciding. A slim margin, just 2%, are planning on making the deferral available to employees, but not by the September 1 effective date. None of the responders said they implemented the program by the September 1 effective date.
The survey results are available for download in the attached PDF file.
As we reported in our previous alert (EY Tax Alert 2020-2163), the IRS provided the following details in Notice 2020-65 concerning this deferral program:
1Although IRS Notice 2020-65 does not expressly state that the deferral is optional for either the employer or the
employee, within the authority of IRC Section 7508A the deferral could not be mandated. IRC Section 7508A provides that "the Secretary may specify a period of up to 1 year that MAY [emphasis added] be disregarded in determining, under the internal revenue laws, in respect of any tax liability of such taxpayer whether any of the acts described in paragraph (1) of section 7508(a) were performed within the time prescribed."
Accordingly, Treasury has no authority to require that affected taxpayers postpone the withholding of Social Security tax pursuant to Notice 2020-65.
In this case, Notice 2020-65 designates employers as affected taxpayers, thereby permitting employers to disregard their deadline; employees are not designated as affected taxpayers and, as a result, do not have permission to disregard the deadline on their own.
Further, to the extent that Notice 2020-65 is ambiguous concerning the employer's ability to opt out, an information release accompanying the notice states: "The Department of Treasury and Internal Revenue Service today issued guidance implementing the Presidential Memorandum issued on August 8, 2020, ALLOWING [emphasis added] employers to defer withholding and payment of the employee's portion of the Social Security tax if the employee's wages are below a certain amount."
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