Deferral of Employee Social Security Tax

Deferral Social Security Tax

Deferral of Employee Social Security Tax

The U.S. Treasury Department and the Internal Revenue Service issued Notice 2020-65 on August 28th, 2020, regarding the Presidential Memorandum that was issued August 8, 2020. The memorandum allows employers the option to defer withholding and payment of the 6.2% Social Security tax for employees whose wages are below $4,000 bi-weekly or the equivalent amount for other pay periods from September 1, 2020 through December 31, 2020. The US Treasury Department has delayed an employer’s obligation of the 6.2% Social Security check that they pay on behalf of their employees.

Employers should be aware of the following mentioned in the notice regarding the tax deferral:

  • Employers remain liable to collect from employees and pay to the IRS after December 31, 2020, the full amount of the employee Social Security taxes deferred.
  • Employers are required to withhold the total taxes deferred for an employee from the employee’s wages ratably for the four month period from January 1 – April 30, 2021.
  • If an employee is not employed with the employer for the full four-month period, the employer is still obligated to pay the total deferred taxes to the IRS. Interest and penalties will begin to accrue on May 1, 2021 if not paid in full by then.
  • Employers are permitted, if necessary, to “make arrangements to otherwise collect” the total taxes due from the employee, but the guidance is silent on how an employer may do so.

It is important to keep in mind that Congress and the Trump Administration are still negotiating on a potential COVID-19 relief measure and that a compromise bill could supersede the President’s actions. As this situation becomes clearer, we will update you on what to expect and what actions to take.

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