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Guidance Issued on Payroll Tax Deferral

After much anticipation, the IRS issued a notice late on Friday providing guidance on the payroll tax deferral that was ordered by President Trump in a memo on August 8th. The new guidance allows employers to defer withholding on affected employees’ compensation during the last four months of 2020 and then withhold those deferred amounts during the first four months of 2021.

According to the new guidance, employers can defer the withholding, deposit, and payment of certain payroll taxes on wages paid from September 1 through December 31, 2020 — that is, the employee portion of the old-age, survivors, and disability insurance (OASDI) tax. The due date for withholding and payment of these taxes is postponed until the period beginning January 1, 2021, and ending April 30, 2021.

The deferral applies to any employee whose pre-tax wages or compensation during any biweekly pay period is generally less than $4,000. So, if the employee is paid less than the threshold amount ($4,000) in a certain biweekly period, then the payroll tax deferral applies to that compensation, even if the employee is paid more than $4,000 in other pay periods.

Affected employers must withhold and pay the deferred taxes from wages and compensation paid during the period between Jan. 1, 2021, and April 30, 2021, or risk interest, penalties, and additions to unpaid tax starting May 1, 2021.