IRS Issues Notice 2020-65 to Provide Guidance to Employers– August 31, 2020 by Kevin Carney

On Friday, August 28, the IRS issued long-awaited guidance on the August 8 executive order for “Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster.” The executive order had directed Treasury to defer withholding, deposit and payment of the employee portion of certain payroll taxes for all pay dates from September 1 to December 31, 2020. The deferral is available to employees earning less than $4,000 of biweekly wages.

Notice 2020-65 provides limited guidance to affected employers (referred to as “Affected Taxpayers”) regarding several unanswered items in the executive action. For the purposes of the $4,000 limitation, the limitation is applied on a per-pay-period basis. If an employee’s wages for a period are in excess of the limitation due to overtime, for example, then their portion of the Social Security tax (referred to as “Applicable Taxes”) due on all wages for that period are not eligible for deferral.

Conversely, if an employee experiences a decrease in their wages for a period due to the COVID-19 pandemic, the wages could fall within the limitation and be eligible for the deferral. This disregards the original interpretation that an employee earning annual wages of $104,000 or more would be completely phased out from the deferral. Amounts for which no withholding is required under Secs 3121(a) and 3231(e) are excluded from the $4,000 limitation. This includes, for example, the employee’s share of health insurance premiums. The $4,000 limitation is adjusted ratably for pay periods other than biweekly.

Further, the notice clarifies that all Applicable Taxes deferred under the executive action are to be withheld from employee wages and paid ratably by taxpayers (EMPLOYER) during the period January 1, 2021 to April 30, 2021. Any amounts still due on May 1, 2021 will begin to accrue penalties and interest as of May 1, 2021.  This provision may be moot, since President Trump had indicated that Treasury would work towards finding a way for all deferred taxes to be forgiven following the election.  However, both Treasury and Congress have publicly agreed that only legislation will allow for forgiveness, and Congress has so far been cool to the idea of payroll tax forgiveness.

Finally, Notice 2020-65 states that “If necessary, the Affected Taxpayer (EMPLOYER) may make arrangements to otherwise collect the total Applicable Taxes from the employee.” Reviewers had initially hoped that any taxes left uncollected from employees and not forgiven would be payable by employees on their personal tax returns, and relieve employers of any further obligation. However, this notice appears to shift the burden for collection entirely onto employers. 

Left unanswered is the key question of how to appropriately handle situations whereby the employee leaves the employer prior to the full collection of tax, or if a large decrease in compensation in 2021 causes the employer not to be able to withhold the full amount of deferred taxes ratably during the repayment period. Presumably, employers could have credit cards or notes receivable on file, however this adds another level of complexity to the employer-employee relationship, and to human resource functions that are already stretched thin during the COVID-19 pandemic.

Employers now must address whether to implement the deferral for their employees. Since the issuance of the executive order, many companies publicly stated they will not do so without additional guidance, and Notice 2020-65 may not provide the sought-after comfort necessary for implementation.

Contact Kevin Carney at, or a member of your service team to discuss this topic further.

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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.