On September 2, 2020, we issued an e-alert discussing the deferral of the employee portion of Social Security taxes (“SS Tax Deferral Program”), as directed by the Presidential Memorandum dated August 28, 2020, and as implemented by the Internal Revenue Service (“IRS”) pursuant to Notice 2020-65 (“Notice”) issued on August 28, 2020.

Notwithstanding the IRS guidance, some issues about the SS Tax Deferral Program remained unclear, including whether the program was optional or mandatory. However, on September 3, 2020, the IRS confirmed during the agency’s monthly payroll industry teleconference that the SS Tax Deferral Program is optional and that employers may, but are not required to, utilize this relief. Thus, the employer, and not the employee, can decide whether or not it will participate in the SS Tax Deferral Program.

Additionally, we wanted to provide another observation with respect to the SS Tax Deferral Program. If an employer elects to participate in the program and defers payroll taxes for an employee who is subsequently terminated prior to the payment of deferred payroll taxes, the employer may become responsible for paying the employee’s portion of the Social Security taxes. In the event the employer pays the terminated employee’s portion of his or her Social Security taxes, such payment will constitute wages for the terminated employee, which will also be subject to additional employer and employee payroll withholding taxes.