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Employee Social Security Tax Deferral

President Trump’s payroll tax deferral plan allows employers to suspend collection of the employee’s Social Security payroll taxes is in effect through Dec. 31. Below is a summary of the IRS issued guidance on the repayment of deferred employee Social Security taxes under President Trump’s Executive Order signed on August 8, 2020.

Employers should consider the following if you decide to partake in the tax deferral:

• Participation is optional for employers and there are no penalties for noncompliance. The tax deferral applies to employees whose wages are less than $4,000 for a biweekly pay period, including salaried workers earning less than $104,000 per year.

o Note this is figured on a pay period by pay period basis, which means an employee could qualify one pay period and not the next due to fluctuations in pay, like overtime.

• The deferral applies to wages paid starting on September 1, 2020, not wages earned. In other words, any paycheck dated September 1, 2020, through December 31, 2020, is covered.

• The deferred amounts must be collected between January 1, 2021, and April 30, 2021. If the entire amount is not recouped by May 1, 2021, interest and penalties will ensue.

• Employers can fulfill this obligation by collecting additional taxes from the workers’ paychecks early next year. Employers should explain to employees that this collection will result in smaller paychecks during the first four months of the year.

• Employers can make “arrangements” to collect the total tax due from employees. No detail is provided on what “arrangements” may be.

• If an employer chooses to suspend withholdings and an employee leaves the company before repaying the deferred taxes, the employer is still liable, but the due date is just extended to the next year.

Until further clarity on the guidance is available, employers who receive requests from employees to withhold Social Security taxes or who wish to suspend withholdings under the deferral program should first speak with their tax expert or tax attorney.

Additional information can be found here:
https://www.irs.gov/newsroom/guidance-issued-to-implement-presidential-memorandum-deferring-certain-employee-social-security-tax-withholding

For further information regarding the guidance under this notice, please call the Notice 2020-65 Hotline at (202) 317-5436 (not a toll-free number).

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