What Deferring Social Security Tax Withholding Means?

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On August 8, 2020, President Trump directed the Secretary of the Treasury to issue rules to defer withholding and payment of an employee’s 6.2% share of the Social Security tax. On August 28, 2020 the IRS issued a notice with guidance related to the deferral as follows:

  • Deferral is limited to employees with biweekly pretax wages under $4,000, or to employees with annual salaries of less than $104,000

  • Deferral period includes September 1, 2020 to December 31, 2020

  • Deferred taxes are withheld and paid ratably from employee’s wages between January 1, 2021 and April 30, 2021

The IRS notice does not specifically indicate the deferral is optional. However, Treasury Secretary Steven Mnuchin stated the deferral is voluntary following the release of the notice. This leads us to believe employers have the option to implement. In addition, the notice is not clear on what an employer should do if an employee leaves employment prior to withholding a deferred amount nor what an employee should do if an employer goes out of business prior to collecting and remitting the deferred amount. We anticipate additional guidance will be forthcoming.

We encourage employers to consult with their payroll provider should they decide to implement this executive order and consider their messaging to employees on the decision of whether to participate as many employees may not fully understand the increase in their paychecks now will be offset by a decrease during the first four months of 2021.

Please contact our Client Accounting Services Team for assistance should you have any questions.