Key takeaways

• The withholding, depositing, and payment of the 6.2% employee Social Security Tax can be deferred from September 1, 2020 through December 31, 2020.
• The deferred taxes must be withheld, deposited, and paid by employers starting January 1, 2021 and ending on April 30, 2021. Other collection arrangements are allowed between employers and employees. Penalties and interest will be assessed against employers for any amounts not paid before May 1, 2021.
• Participation is voluntary on the part of the employer and employee.
• NOTICE! No other employee or employer taxes are affected by this deferral. Only the 6.2% employee Social Security Tax can be deferred. Employee federal income tax withholding, 1.45% employee Medicare withholding, employee state income tax withholding, and all employer taxes must be withheld and/or deposited as normal.

Details

On August 8, 2020, President Trump signed a Presidential Memorandum that permits the voluntary suspension of the withholding, depositing, and payment of the 6.2% employee Social Security tax (and Railroad Retirement Act taxes). The memorandum neither address the 1.45% employee Medicare tax nor any employer taxes - these amounts are still required to be withheld, deposited, and paid as normal. The deferral only applies to an individual paycheck if the gross pay before any deductions is less than:

1. $2,000 for any weekly payroll period,
2. $4,000 for any bi-weekly payroll period,
3. $4,333 for any semi-monthly payroll period, or
4. $8,666 for any monthly payroll period.

On August 28, 2020, the IRS issued a Notice giving limited guidance concerning the deferral of the 6.2% employee Social Security tax. The notice postpones the withholding and remittance of this tax from September 1 through December 31, 2020. The postponed taxes will be withheld and remitted beginning on January 1, 2021, and ending on April 30, 2021. Penalties and interest will be assessed against any employer on the amount not paid before May 1, 2021. If the memorandum is followed, employees will have no Social Security tax withheld from their paychecks from September 1 through December 31, 2020 and then will basically have double the amount withheld from January 1 through April 30, 2021.

There are still numerous questions that are unanswered. For instance, if an employee separates from service and doesn't repay all of the social security taxes is the employer still liable to the government for the uncollected taxes? Another question is what happens if an employer chooses not to defer the taxes, but Congress later forgives the amount by enacting legislation.

CAUTION!  This is only a deferral of the employee's 6.2% Social Security tax, NOT a forgiveness of the tax. The amounts that should have been withheld will be required to be collected by the employer and any interest or penalties will be assessed against the employer if not paid before May 1, 2021. This could result in employers having to pay tax, interest and/or penalties that they otherwise would not have been required to pay.

Participation is optional and we caution our clients with employees to consider the numerous unanswered questions and the employer's potential liability for uncollected taxes before making a decision to allow the deferment. Those employers who wish to participate in the deferment should inform us or their payroll provider as soon as possible so their payroll calculations can be adjusted.