Payroll Tax Deferral

What I know as of this post is that on August 8, 2020, the President directed the Secretary of the Treasury to use his authority to allow employers to stop withholding Social Security payroll taxes for the period of September 1, 2020, through December 31, 2020.

On Friday, August 27, the IRS issued a short guidance notice for employers. The following are critical points.

  • Only employees’ share of the Social Security withholding is involved.
  • Employers must still deposit their share of the Social Security tax.
  • During the period of January 1, 2021, through April 30, 2021, the employer must submit payments of all employee deferred amounts.
  • It is up to the employer to either pay the tax or collect the deferred tax from each employee.
  • Failure to remit all deferred amounts can result in penalties and interest for failure to deposit the full deferred payments.
  • If an employer chooses to participate in the deferral, then their employees will be paying twice the amount of Social Security payroll taxes over three months, starting in January 2021, causing what will feel like a 6.2% pay cut.

After reading the guidance statement several times, and considering the above points, I have concluded that employers should proceed as if the deferral option does not exist.

IRS Guidance Statement

CapinCrouse analysis of the deferral

Forbes review

6 thoughts on “IRS Issues Guidance on Payroll Tax Deferral Starting September 1”

  1. Are you saying that one would pay back the 6.2% plus another 6.2% beyond their normal 6.2%?

  2. No. Starting in January the employee SS tax would be 6.2% plus the payback of 6.2 % if there is no change in pay rate. In other words, Starting in January employer would be collecting the deferred taxes from the previous quarter.

  3. I have seen documentation that states that the deferral is voluntary unless a state law requires it. Will there be options available in payroll to defer or not to defer the tax?

  4. Barbara, sorry for the delayed response.
    If you are accepting the option of not withholding Social Security tax, then please call Shelby Support. A team member will be able to help you setup a method using manual checks to make it work. You will probably need to also use Manual Checks in the first quarter of 2021 to withhold and submit the double Social Security tax.

  5. We made no changes at all in 4th quarter with regard to SS taxes…we withheld as usual, did the employer’ share, and paid in through EFTPS. I would imagine that’s ok? 🙂

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