Any employer who withholds the 6.2% Social Security tax from their employees' paychecks is eligible to voluntarily defer the withholding, deposit, and payment of the tax from September 1, 2020 until December 31, 2020 on eligible checks.
Any employee who is subject to the 6.2% Social Security tax withholding is eligible to defer withholding of the tax on any paycheck issued between September 1, 2020 and December 31, 2020 where the gross pay before any deductions is less then:
Any taxes deferred under this rule must be withheld, deposited, and paid ratably between January 1, 2021 and April 30, 2021. Amounts not paid before May 1, 2021 will subject the employer to penalties and interest.
Employers remain responsible for the withholding, depositing, and payment of the deferred taxes. See "When are the deferred taxes due?" for payment deadlines.
As of August 28, 2020, no guidance has been issued related to uncollected deferred taxes. IRS guidance issued in the form of a Notice on August 28 does allow for other arrangements to be made with the employee to collect deferred taxes other than ratably over the collection period of January 1, 2021 until April 30, 2021. No details of what other arrangements are allowed was given in the notice.
Nothing in the notice relieves an employer of liability from paying deferred taxes.
Yes, the deferral is a delay in the withholding, depositing, and payment of the 6.2% employee Social Security taxes. It is not a forgiveness of the taxes which must be withheld from future employee checks and paid within a specific time frame. See When are the deferred taxes due? for more information.
There are numerous unanswered questions related to the deferment of payroll taxes. Employers may have to adjust their payroll practices to comply with current and future guidance. Guidance may prove to be complex and costly to implement. They may also be required to pay taxes, interest and/or penalties that they otherwise would not have to pay if they choose to allow employees to defer the 6.2% of Social Security taxes.
The deferral only applies to the 6.2% employee Social Security tax. The deferral does not apply to the 1.45% employee Medicare tax, federal and state income tax withholding or any employer taxes.
This is a decision that should be made carefully. Employers should consider the administrative costs that will be involved with implementing the tax deferral and any future guidance that may be issued; the failure to withhold the deferred taxes because an employee either doesn't have enough future earnings or separates from service may subject an employer to taxes, interest and/or penalties that they would not otherwise have to pay; and that the increased tax withheld during the repayment period may be detrimental to your employees' finances among other factors.
We have no guidance on the impact of an employer's decision not to defer the 6.2% employee Social Security tax should Congress decide to enact legislation that forgives the deferred taxes.
Employers and employees have the option of deferring the 6.2% employee social security tax from September 1 through December 31, 2020. Any deferred taxes must be paid between Janaury 1 and April 30, 2021.
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Employers are required to continue to pay employees under certain circumstances related to the COVID-19 virus. Employers will be reimbursed 100% of the payments under this act.
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Perform a "Paycheck Checkup!" Recent changes to the federal tax law made changes to your paycheck. Be sure that you have the proper amount of federal tax withheld in order to avoid a tax bill. Click here for details.