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President’s Memorandum on Deferring Payroll Tax Obligations

President’s Memorandum on Deferring Payroll Tax Obligations

Our office has been receiving numerous inquiries about President Trump’s recent memorandum, issued August 8, 2020, on deferring payroll taxes. The memorandum directs the Secretary of the U.S. Treasury to use his authority under 26 U.S.C. 7508A to defer the withholding, deposit, and payment of the tax imposed by 26 U.S.C. 3201(a) — i.e., the Social Security tax of 6.2% — on wages and compensation paid during the period of September 1, 2020 through December 31, 2020. This blog post will provide some additional guidance.


This Social Security tax deferral applies to all employees whose biweekly pay is ‘generally’ less than $4,000 when calculated on a pre-tax basis. This is the equivalent of an annual salary of $104,000 or less.

Within the president’s memorandum, section three (3) asks that the treasury secretary issue guidance to implement this memorandum: Accordingly, our office, along with local government payroll system administrators, business owners, and any employer with workers on the payroll have been waiting for such guidance to be released. The effects of the memorandum are far-reaching, and there has been considerable confusion about how an employer would go about ‘deferring’ the withholding and remittance of their employees Social Security taxes.

Finally, on Friday, August 28, 2020, the Internal Revenue Service (IRS) released Notice 2020-65, which states, in part:

Accordingly, the Secretary has determined that employers that are required to withhold and pay the employee share of social security tax under section 3102(a) … are affected by the COVID-19 emergency for purposes of the relief described in the Presidential Memorandum and this notice (Affected Taxpayers). For Affected Taxpayers, the due date for the withholding and payment2 of the tax imposed by section 3101(a) … on Applicable Wages, as defined herein, (collectively Applicable Taxes) is postponed until the period beginning on January 1, 2021, and ending on April 30, 2021.

The bottom of page 1 of Notice 2020-65 provides clarity for the subject of deposit obligations with footnote number 2:

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. Thus, this notice does not separately postpone the deposit obligation.

What Are “Applicable” Wages?

Applicable wages are those wages paid to an employee on a pay date starting with September 1, 2020 and continuing until December 31, 2020. It’s important to note that tax liability with the IRS is not recognized until the employee is ‘paid.’ Therefore, employee paychecks released on September 1, 2020, or after will fall within the ‘applicable wages’ period regardless of the pay period being compensated. For many local government entities, the compensation period will be for a previous month. For example, those entities that pay on the fifth of the month are typically compensating for the prior month or prior bi-monthly compensation period. 

Applicable wages under the president’s memorandum also has a threshold of $4,000 or the equivalent threshold amount if you pay with other pay periods (monthly or bi-monthly), which “must be” determined at each pay period. For those employees who are compensated on an hourly basis or subject to overtime or other additional forms of compensation, such as longevity pay, this determination must be made each pay period. If an employee’s earnings fall below the $4,000 threshold, the employee ‘may’ defer social security tax payment: However, in those pay periods where the earnings exceed the $4,000 threshold, the employer must withhold and remit payment to the IRS as required. These ongoing recalculations may require some adjustments to your payroll software systems.

IRS Guidance and News Release  

While Notice 2020-65 provides additional details on the determination of which wages are subject to the deferral and when the deferral must be repaid, it leaves many questions unanswered and creates potential liability for employers. However, there are two items of significance in the news release the IRS issued in additon to Notice 2020-65.

The first item is the affirmation that employers are responsible for withholding and timely remitting of employee Social Security taxes, and — unless Congress eliminates the Social Security tax for this time period — this will continue to be the employer’s responsibility.

Secondly, it appears to be ‘optional’ that employers implement a system to defer Social Security tax withholding and remitting. The third paragraph of the news release reads:

The employee Social Security tax deferral may apply to payments of taxable wages to an employee that are less than $4,000 during a bi-weekly pay period, with each pay period considered separately. No deferral is available for any payment to an employee of taxable wages of $4,000 or above for a bi-weekly pay period. (Emphasis added.)

So, now the question employers must ask themselves is whether they will create systems to defer the withholding of the Social Security taxes or advise their employees that the agency will continue to withhold the Social Security taxes and remit as normal. For employers, here are three things to consider when debating this question:

Number one: This is a tax deferral, not an elimination of the Social Security tax obligation. While the employer is liable for the collection and remittance of the Social Security tax, they will be looking to the employee for the withholding of this tax. For the sake of this discussion let’s say the employee earns an annual salary of $85,000, a year. The employee’s monthly salary is paid on the fifth day of the month, based upon a monthly salary of $7,083.33. The monthly Social Security withholding under normal payroll processing would be $439.17. The total deferral for the 4-month period would be $1,756.68. This tax obligation is required to be repaid between January 1, 2021, and April 30, 2021, which means that the employee would have to pay $878.34 per month instead of the $439.17 during the months of January, February, March, and April. The additional tax burden after the first of the year may be more of a cash-flow burden than the employee can bear.

Number two: While the IRS news release does not require employers to defer withholding, it also does not address whether employers must honor requests made by employees to have their Social Security taxes deferred. This means that local government will need to decide how to manage these requests. Depending upon the size of your entity, it may be an easy conversation between management and employees. However, for many of you in larger jurisdictions, these conversations may require assistance from your legal counsel, especially if your entity has union contracts.

Number three: What if the employee separates from employment during the deferral period? Due to the fact that the employer is legally responsible for the collection and remittance of the tax, the only option would be that all taxes deferred must be collected from the employee at the time of the release of final pay. Local government may want to discuss with their legal counsel and human resource (HR) departments the need for forms signed by the employee acknowledging this liability.  


Like so many other issues right now, there seems to be more questions than answers and more confusion than resolution.

It would not be our recommendation that local government defer the collection and remittance of any portion of federal 941 taxes: federal withholding, Social Security, and Medicare (both employee and employer contributions). Employers currently have the option to defer their remittance, and we have continuously recommended against this practice when asked to advise on it. With so many fiscal obligations being deferred during the COVID-19 pandemic — such as utility payments, rents on housing, property tax payments in some counties, and other liabilities owed by our employees and citizens of our communities — it is hard to imagine how all of this debt will be repaid. Kicking the can down the road has never been considered a best practice. Should it be now? 

MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.

Photo of Toni Nelson

About Toni Nelson

Toni worked with many local governments and authored numerous MRSC publications on budgeting, cash basis accounting and reporting, and the application of Washington State B.A.R.S. requirements. During her time at MRSC, she also conducted multiple trainings annually on similar subjects and was consider an expert in small city finance issues. She retired in 2020.