Employee Social Security Tax Deferral

On August 8, 2020, the President issued a Presidential Memorandum to allow employers to defer withholding of the employee’s share of Social Security tax (6.2%). On Friday, August 28, 2020, the IRS and Treasury Department issued Notice 2020-65, which contains initial guidance on the payroll deferral.

Initial Guidance

  • Participation in the deferral program is optional
  • Deferral period is for wages paid from September 1 through December 31, 2020
  • Deferral is available for employees whose wages or compensation are less than $4,000 for a bi-weekly pay period
  • The employer’s share of Social Security taxes will not be due until amounts are withheld from the employee’s wages or compensation
  • Employers are required to withhold and pay any deferred payroll taxes from wages and compensation paid from January 1 through April 30, 2021
  • Interest and penalties will begin to accrue on unpaid taxes starting May 1, 2021

Decision Considerations

Points to consider when making the decision on whether to defer:

  • Currently, the amounts deferred must be repaid, as Congress must act for any amounts deferred to be forgiven
  • Administrative costs will increase
  • Many payroll systems have not updated their system to implement this deferral
  • Consider messaging to employees on the decision of whether to participate in the program as many employees might not realize this is only a short-term deferral and any increase in their wages will be offset by a decrease in 2021
  • The employer is ultimately responsible for ensuring that the deferred taxes are repaid
  • There is a risk that Congress might only address actual amounts deferred in any forgiveness legislation

If you have questions, please contact your Jones & Company, Ltd. accountant.

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