Guidance Issued Concerning Deferral of Employee Social Security Tax Withholding

On August 8, 2020, the President of the United States issued a Presidential Memorandum authorizing the Secretary of the Treasury to defer the withholding, deposit, and payment of certain payroll tax obligations. Applicable wages was defined as wages paid to an employee on a pay date during the period beginning September 1, 2020 and ending on December 31, 2020, but only if the amount of such wages or compensation paid for a bi-weekly pay period is less than the threshold amount of $4,000, or the threshold amount with respect to other pay periods.

On August 28, 2020, the U.S. Treasury Department and Internal Revenue Service (IRS) issued Notice 2020-65 (Treasury Notice) implementing the Presidential Memorandum, allowing employers the option to defer (i.e., postpone) withholding and payment of Social Security tax for eligible employees.

The Treasury Notice clarifies that the deferral effectively postpones the time for employers to withhold and pay employee Social Security taxes. Employers that defer must withhold and pay the total taxes deferred ratably from wages and compensation paid between January 1, 2021 and April 30, 2021. This withholding will be in addition to the normal Social Security tax due for 2021 wages paid during the same period, which may cause some questions and concerns. Interest, penalties and additions to tax, for which employers would be liable, will begin to accrue on May 1, 2021, with respect to any unpaid taxes.

For example, if an employee deferred a total of $800 in 2020, an employer that has eight scheduled payrolls between January 1 and April 30, 2021, will deduct $100 per pay from the employee to collect and pay the full amount deferred in 2020.

In the event that an employee does not continue employment through April 2021, the employer should make arrangements to collect all amounts deferred from the employee. When obtaining employee elections to defer, employers should also consider requiring employees to acknowledge that deferred amounts will be withheld from wages beginning in January 2021, and that employers may also use other arrangements if necessary to collect any deferred taxes, including from employees who separate employment before the full amount of deferred taxes is withheld.

The Notice does not directly state whether the payroll tax deferral is optional for employers. However, based on the authority on which the guidance relies, it appears that the employer can choose whether to implement the deferral. As the Notice does not designate employees as “Affected Taxpayers”, it appears that the IRS did not intend to grant employees an independent right to defer withholding, deposit and payment of the employee portion.

For business that are employers, BWTP is not recommending you participate in this program. In addition to the lack of clear guidance on the program, this program as it currently stands, is not a relief of payment of the 6.2% Social Security taxes, but only a deferral of payment for a 4-month period. The deferral may be advantageous for your employees for the next few months, but the repayment of the taxes in 2021 may cause an additional hardship as the withholding will reduce the employee’s take home pay for the first few months in 2021.

As the coronavirus continues to increase in Missouri, the BWTP office has extended our internal procedures through October 5, 2020 to safeguard our team members and clients.

  • No client meetings are presently being held at our office. If you need a meeting with one of our team members, it can be done remotely through Zoom or Teams, or we can meet you at your office if we are able to social distance.
  • Our team members are encouraged to work from home to keep the number of individuals to a minimum in our office at any one time. Even with working remotely, our team is available to answer your phone calls and emails.

 

Through this difficult time, we ask for your patience. As we are working remotely, we may be delayed in returning phone calls or emails, but we are still here to assist you with your accounting and financial needs.

Robert (Bob) Schmidt, CPA

Principal at BWTP, P.C. Read Bob’s bio here.

Leave a Reply

*

captcha *