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.