In August, the administration issued an Executive Order, which allows for a deferral of an employee’s portion of Social Security taxes.
Per IRS Notice 2020-65, the deferral applies to Social Security taxes on wages earned that are less than $4,000 in a biweekly period, or $104,000 annually, September 1, 2020 through December 31, 2020. While the deferral of taxes during this period does not incur any interest or penalties, the employee is still responsible for paying the taxes back between January 1, 2021 and April 30, 2021 as this is not a tax exemption, but simply a means to defer paying the tax until 2021. To satisfy the repayment, the employer is required to withhold double Social Security taxes during this time.
This payroll tax deferral is optional, so employers may choose to defer Social Security taxes or maintain current deductions. Some employers feel the tax break is necessary and welcomed by employees now. Others feel uncertainties still remain about the Executive Order and withholding double Social Security taxes in 2021 could cause a hardship for employees and complications for the employer.
We will continue to monitor newly released guidance pertaining to this Executive Order, and any others released, and will let you know if there are any changes in the future.
- Consult with tax and legal teams to make a determination if you will be opting to defer the Social Security tax at this time.
- If deferring, work with payroll company to determine how quickly they can update their payroll deductions to defer and then later to collect the deferred amount.
- Advise employees of your company’s plan and how it will affect their taxes.