Deferred social security tax – Pay now or Pay Later? Who is liable?

Deferred social security tax - Pay now or Pay Later_ Who is liable_ Shannon & Associates Kent, WA

In August, a Presidential Memorandum was issued allowing the deferral of the employee’s portion of Social Security tax withholding, which is 6.2% of wages. 

  • This is a deferral, not forgiveness of payroll taxes.
  • Employers are not obligated to allow for the deferral.

New guidance has been released from The Department of the Treasury and Internal Revenue Service regarding the details.

  • Employers have the option to defer the withholding, deposit, and payment of the employees’ portion of Social Security tax on eligible wages paid from September 1, 2020 to December 31, 2020.
  • For the employees’ wages to be eligible, the pretax wages or compensation during any biweekly pay period must be less than $4,000. The $4,000 threshold is made on a per-pay-period basis, irrespective of the amount paid in prior or future pay periods. An equivalent threshold amount for shorter or longer pay periods may be used.
  • Deferred taxes must be withheld from the employee’s paycheck and paid to the IRS from January 1, 2021 to April 30, 2021.  This is in addition to regular withholding.
  • Starting May 1, 2021, interest and penalties on the unpaid tax will begin to accrue and are assessed against the employer.
  • Employers remain liable to collect from employees and pay the IRS the full amount of the deferral.
  • Best Practice – Employers who choose to defer taxes should consider providing a written explanation to employees and obtaining a signed opt-in statement from employees.

We expect more clarification of the rules in the next few weeks.

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