Employee Social Security Payroll Tax Deferral: What You Need to Know
The Department of Treasury and Internal Revenue Service issued guidance on Friday, August 28th on implementing the Presidential Memorandum issued on Aug. 8, 2020, allowing employers to defer withholding and payment of the employee’s portion of the Social Security tax if the employee’s wages are below a certain amount.
Notice 2020-65, posted on IRS.gov, makes relief available for employers and generally applies to wages paid starting Sept. 1, 2020, through Dec. 31, 2020.
The notice also indicated:
- Eligibility for the employee deferral is based on per pay period frequency subject wages, that are less than $4,000 on a bi-weekly basis. Previous earnings are not applicable when determining eligibility.
- Penalties and interest will apply if deferral amounts between 9/1/20 – 12/31/20 are not recovered by 4/30/21.
- The employer “affected taxpayer” is responsible for the recovery and remittance of the deferred employee Social Security tax.
- Whether employers are required to participate in the deferral?
- Since employers are responsible for recovery of deferral amounts what happens if the employees are no longer employed or can’t recover from existing employees?
- Who is responsible for the penalties and interest after 4/30/21?
- How are these deferrals recorded on the W-2 and quarterly returns?
Based on the recently released guidance, companies should carefully consider the impact to its employees and the exposure to their business. Companies may want to start the discussion around internal procedures. Clearly communicate to their employees that this is a deferral and not a tax credit and the implications of not recovering the deferral amount by 4/30/21.
Namely continues to monitor for additional clarification.
Namely does not provide legal, accounting, or tax advice. Please consult with professional counsel for any tax, accounting or legal questions.
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