As you may recall, earlier last month (August 8), President Trump issued an executive order allowing employers to defer withholding and payment of a portion of their employees’ Social Security taxes if wages are under a certain threshold.
Then, last Friday (August 28), the IRS provided guidance on the deferral.
Here’s what you need to know:
- The short deferral of the tax is not an elimination of the tax. Employers can defer the withholding, deposit, and payment of certain payroll taxes on wages paid from Sept. 1 through Dec. 31, 2020.
- This executive order applies specifically to the Social Security tax and would affect workers whose bi-weekly pay is less than $4,000 on a pretax basis.
- The payroll tax break is temporary. Employers have from January through April 2021 to pay the deferred payroll taxes back before interest or other penalties start accruing next May.
- As payroll tax withholding and depositing is the employer’s duty on behalf of the employee, it will be up to employers to manage the administrative responsibility of implementing this executive order if they choose to do so.
Why is this tricky?
- Employers are generally responsible for withholding and depositing the payroll tax. The employer is on the hook for the tax if the employees’ share of taxes isn’t withheld. However, according to the IRS’s guidance, employers “may make arrangements to otherwise collect the total applicable taxes from the employee.”
- As an employer, your deposit obligation is postponed, but only for the employee’s portion of Social Security tax paid on the applicable wages.
What can you do?
- Given the quick turnaround of this information and the current health crisis, we recommend scheduling time with your payroll provider and/or Paragon Accountants regarding the implementation of this executive order, and how to best communicate with your employees.
- Stay informed! Keep refreshing that news page, and of course, Paragon will continue to monitor this situation and share further information as additional guidance is released.
You can read the three-page notice in its entirety here.
