Late Friday, the IRS released Notice 2020-65 providing guidance to employers regarding the implementation of President Trump’s presidential memorandum issued on August 8, 2020.  The memorandum directed the Secretary of the Treasury to defer the withholding, deposit, and payment of employee Social Security taxes for the period from September 1 to December 31, 2020 (see earlier coverage of the presidential memorandum).  Shortly after the memorandum was released, Secretary Mnuchin confirmed that the deferral is voluntary and that employers may continue to withhold and deposit employee Social Security taxes in accordance with their normal schedule (see earlier coverage of Sec. Mnuchin’s confirmation that deferral is voluntary).

Although brief, Notice 2020-65 does answer some key questions for employers.  The presidential memorandum left unclear which employees would be eligible for the deferral stating that it applied to employees who generally have wages (for purposes of FICA taxes) of less than $4,000 per bi-weekly pay period, or the equivalent amount for pay periods of other lengths (e.g., $2,000 per weekly pay period, $4,333 per semi-monthly pay period).  Notice 2020-65 clarifies that the determination of whether an employee is eligible for the deferral of the employee’s share of Social Security taxes must be determined on a payroll-by-payroll period.  In other words, if an hourly employee’s wages are below the pay-period threshold for a pay period, the employee’s share of Social Security taxes may be deferred.  If in the following pay period, the employee’s wages exceed the threshold, the employee’s share of Social Security taxes must be deposited on time.

Notice 2020-65 also states in footnote 3 that, as expected, remuneration excluded from the definition of wages for purposes of FICA taxes does not count in making a determination of eligibility.  Accordingly, an employee who participates in a health FSA, dependent care FSA, and has family coverage eligible for the deferral while an employee with the same gross pay who has individual health coverage may not be.

Notice 2020-65 also specifies when the deferred taxes must be deposited.  According to the notice, the employer “must withhold and pay the total [deferred taxes] . . . ratably from wages . . . paid between January 1, 2021, and April 30, 2021.” The notice goes on to indicate that “if necessary, the [employer] may make arrangements to otherwise collect the total [deferred taxes] from the employee.”  In other words, the notice does not relieve the employer’s obligation to deposit the taxes under section 3102 and the employer remains liable for the payment of the deferred taxes regardless of whether the employer is able to collect the deferred taxes from the employee.  Moreover, any deferred employee Social Security taxes not deposited by April 30, 2021, will be subject to interest and penalties.  For employers with tipped workers, it is not clear how the obligation to collect and deposit the deferred taxes will coordinate with the rules governing the withholding of taxes on tips.

The chart below demonstrates how the deferral and withholding could work.  In this example, a hypothetical employee runs payroll biweekly with the first pay date after September 1 falling on September 7.  Such an employer would defer the employee share of Social Security taxes over 9 payroll periods in 2020, but would recoup them over 8 payroll periods in 2021.  For an employee with $1,000 in wages per pay period, the deferral would result in an increase of $62 per pay period in take-home pay for the remainder of 2020.  In 2021, the employee’s take-home pay would be reduced by $69.75 per period to recoup the deferred taxes.  An employee with $4,000 in wages per pay period would see take home pay increase by $248 per period in 2020, but reduced by $279 per pay period during the first four months of 2021.

Deferred Taxes
Deferred Taxes

Bi-Weekly Extra
Tax Withholding


$62 $558



$124 $1,116



$186 $1,674



$248 $2,232


Employers should carefully consider the risk that employees will terminate their employment before the deferred taxes are collected.  If an employer elects to defer the withholding of employee Social Security taxes and the employee leaves before the taxes are withheld, it may be forced to pay those amounts itself and potentially gross-up the amount as additional wages to a former employee.