Recently, the IRS and U.S. Department of Treasury released guidance regarding President Trump’s executive action to give workers a tax “holiday” as additional COVID-19 relief. The guidance, officially called Notice 2020-65, allows companies to temporarily suspend the withholding of eligible employees’ Social Security payroll taxes. This deferment only applies to employees whose bi-weekly paychecks are less than $4,000 ($104,000 a year). Employers, as well as workers, have posed many questions in response to the new action.
Are employers obligated to offer the deferment?
No. Although the current guidance does not specifically say whether companies are required to offer the option, it is voluntary, and there are no penalties for not complying.
Will employees have to pay the taxes back?
Yes. It’s important to remember that this is only a temporary delay. Any employer who offers the deferral will have to pay back the balance by the end of April 2021. To do this, employers will collect additional amounts from the employee’s paychecks from January 1 through April 30, 2021. Social Security tax is currently 6.2% of workers’ wages. In order to repay the deferred amount, wages could decrease by about 6.2% in addition to other taxes and deductions.
What if the affected employee leaves?
If the employee changes jobs, the employer is still responsible for repaying the deferred amount, but the due date is extended to the next year (2022). Employers can make repayment arrangements with the departed employee, such as withholding the full amount from the last paycheck. If not, the employer is required to pay the amount owed. Notice 2020-65 does not provide further guidance on what means employers can take to enforce departed employees to pay their balance.
PUBLIQ is closely monitoring any updates released by the IRS and the U.S. Department of Treasury and will continue to provide updates. The IRS recently released a draft of a revised Form 941, with the addition of line 13b (“Deferred amount of social security tax”).
If you are a PUBLIQ Payroll customer and would like to learn more about the steps we’re taking regarding the Social Security payroll tax deferral, please contact us at [email protected].