President Trump issued an executive order on August 8, 2020 allowing employers to defer employee’s social security taxes for certain employees for the period beginning September 1, 2020 through December 31, 2020. The Department of Treasury and the Internal Revenue Service issued Notice 2020-65 providing additional guidance on August 28, 2020.
The executive order defers the employer’s obligation to withhold, deposit and pay the 6.2% Social Security tax for employees. It applies to employees who “generally” make less than $4,000 bi-weekly, calculated on a pre-tax basis, which equates to $104,000 annually.
Any deferred Social Security taxes would then be collected from the employees proportionately on their paychecks from January 1, 2021 – April 30, 2021, creating an additional withholding and reduced net pay for employees at the beginning of 2021.
The White House has indicated that it expects to see the taxes deferred forgiven and the obligation to pay back the deferred taxes eliminated, however, this would require that additional legislation be passed.
The guidance that has been released to date has failed to address many questions for employers. The current guidance and Secretary Steven Mnuchin’s commentary has indicated that the deferment of payroll taxes is optional.
As the order exists currently, employers are responsible for withholding and depositing employee’s social security taxes. If an employee is terminated at any point and the deferred taxes are not withheld it will be the employer’s responsibility to deposit the deferred taxes on behalf of the employee.
With the limited guidance available at this time, SIMA is recommending that employers do not participate and continue to withhold employee’s social security taxes. If you decide to participate, it is important that you consult both your payroll provider and tax advisor prior to stopping withholding. Please reach out either your SIMA accountant or payroll team member with any questions or additional clarification.