Guidance on Payroll Tax Deferral Program
August 8, 2020, President Trump issued an executive memorandum allowing for the deferral of the withholding and employer remittance of the employee share of Social Security tax (6.2% of wages) effective September 1 through December 31, 2020. The deferral is calculated each payroll period and is only available to employees earning less than $4,000 bi-weekly.
We have been reviewing all available information on this new rule and realize that many issues and questions have not yet been addressed by the Treasury Department. We expect additional guidance in the future. Based on the information we currently have, we are providing answers to frequently asked questions by our business clients throughout the United States.
- As an employer, do I have to participate in this legislation?
“The Department of Treasury and Internal Revenue Service today issued guidance implementing the Presidential Memorandum issued on August 8, 2020, allowing employers to defer withholding and payment of the employee’s portion of the Social Security tax” when certain wage criteria is met. The guidance does not indicate that this is mandatory for employers and the guidance does not state assessments or penalties relating to not deferring employee Social Security tax.
- Do the taxes have to be paid back?
The IRS guidance indicates that employers are required to remit deferred taxes related to this Executive Order no later than April 30, 2021. Employers will be required to withhold the deferred amount for each employee, in addition to the normal deduction for Social Security, from their wages paid between January 1 and April 30, 2021. If the deferred amounts are not repaid by April 30, 2021, the IRS will assess interest and penalties to the business. Withheld taxes must be paid at the employer’s standard deposit schedule.
For example, if an employee defers $400 in 2020 and is paid monthly; the employer could withhold, deposit and pay an additional $100 for each paycheck in 2021 for January, February, March and April paychecks.
- What happens if the employee leaves the company before the taxes are repaid?
The employer may make repayment arrangements with the employee. However, the employer remains liable for the timely payment of the employee’s share of Social Security taxes according to current law. If you are unable to collect the deferred taxes from the employee, it is still the employer’s responsibility to remit payment by April 30, 2021.
- How are these deferrals reported?
These deferrals must be reported on a revised 2020 Form 941. This form is currently in draft phase with the IRS. The current draft indicates that Line 13b will include deferred amount of social security tax and Line 24 will include deferred amount of employee share. More information and instructions should be forthcoming from the IRS on completion of this form.
- Are all earnings eligible to have the tax deferred?
FFCRA earnings are not eligible for deferred tax elections.
- How do I participate in this program?
To participate in this deferral program, contact your Client Advocate for assistance.
There are still many unanswered questions and fine points of the law to be addressed by the IRS and the Treasury Department. As we learn more, we will share updates with you so that you can make informed decisions about your payroll. As you encounter difficult questions relating to compliance and human resources, please reach out to your Dedicated Client Advocate for assistance or our HR Services team at firstname.lastname@example.org.