On August 28, 2020, the IRS issued guidance to employers on how to execute the President’s August 8th, 2020 memorandum (Notice 2020-65) allowing allowing for the voluntary deferment of both the federal withholding tax and the 6.2% of income share of employee’s social security tax contributions. Our payroll experts recommend that you continue as status quo – opting to not participate in the payroll tax deferral and continuing to withhold and pay the employee portion of the Social Security tax.
The Notice allows employers the option to defer the federal withholding tax and payment of the employee portion (6.2%) of the Social Security payroll tax if an employee’s wages are below:
- $4,000 bi-weekly
- $2,000 weekly
- $4,333 semi-monthly
- $8,666 monthly
- Employers have the option to defer the withholding and payment of the employee’s portion of Social Security tax on wages paid from September 1, 2020 through December 31, 2020.
- The threshold level is a cliff. If the specific pay is $4,000 or more (bi-weekly, or $4,333.33 semi-monthly, or $2,000 weekly), the SS tax cannot be deferred.
- Determination of applicable wages is to be made on a per pay period basis.
- The deferral period starts September 1, 2020, meaning that it can apply to payments made on or after September 1, 2020.
- The due date for the withholding and payment of these taxes is postponed until January 1, 2021 through April 30, 2021.
- Interest, penalties, and additions to tax will begin to accrue on unpaid taxes starting May 1, 2021.
Current interpretation has the employer as the one responsible for making the payment of the deferred taxes, which in turn, may leave some employers on the hook to pay without being able to get those funds from an employee.
Based on the guidance that has been issued at this time, our payroll experts recommend that you continue as status quo – opting to not participate in the payroll tax deferral and continuing to withhold and pay the employee portion of the Social Security tax.
If you have any questions about what the next steps should be for your business, contact Lori Reich at (320) 214-2906.
