The Recent IRS Notice About the TFRP: What It Means in Plain English

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In late August, 2020, the IRS released Notice 2020-65. This notice primarily deals with the recent memorandum from President Trump, authorizing a payroll tax holiday.

Unfortunately, both the payroll tax policy and the related notice are difficult to understand. Keep reading to learn what they and how the information contained therein might impact your payroll tax situation — or your potential for being assessed the Trust Fund Recovery Penalty.

The Notice’s Basic Provisions

The main takeaway from Notice 2020-65 is that all employers that withhold taxes on behalf of their employees are impacted, to some extent, by the pandemic. As such, all are eligible for payroll tax relief, although this is limited to compensation totaling less than $4,000 for every bi-weekly pay period.

Another important revelation from the notice: deferred taxes must be paid in early 2021. At that time, affected employers are allowed to make arrangements to collect applicable taxes from workers. Those who fail to file in a timely manner will be assessed penalties. While the notice does not explicitly mention the TFRP, it’s implied that this consequence may come into play in select situations.

What Is Left Unsaid

Unfortunately, while IRS Notice 2020-65 offers valuable insight into withholdings and deposits for Social Security taxes, it also leaves several urgent questions unanswered. Treatment of the TFRP, in particular, remains an area of concern. The notice fails to outline whether the TFRP might apply to applicable taxes deferred based on the payroll holiday.

Without further clarification, it’s possible that employers who experience sudden downturns in business could be subject to the TFRP. This may occur if struggling businesses lay off or furlough workers before paying deferred applicable taxes. If these businesses are unable to collect taxes from employees they’ve let go — and if they lack liquid assets to cover this obligation on their own — business owners could be in for a world of trouble.

If you’re struggling to understand the latest developments surrounding the TFRP, take heart — the experts at the Highland Tax Group are happy to help. Reach out today to learn how we can provide guidance during this difficult time.