The IRS issued guidance at the end of August regarding deferral of the employee’s portion of Social Security tax as described in President Trump’s August 8 Presidential Memorandum.
The Presidential Memorandum deferred the employee’s portion of Social Security taxes from September 1, 2020, through December 31, 2020. The president’s move was made in reaction to the ongoing coronavirus pandemic that continues to hobble the economy.
No details were included with the memorandum directing when or by whom the payroll taxes would need to be repaid, until August 28 when the Treasury Department released its guidance giving a little more direction.
The guidance reiterates that employers may defer from September 1, 2020, through December 31, 2020, the withholding, deposit and payment of the 6.2% employee Social Security tax for any employee whose wages or compensation payable during any biweekly pay period generally is less than $4,000, calculated on a pretax basis.
To determine which employees will be affected by the payroll tax deferral, employers will need to determine the applicable wages on a pay period-by-pay period basis during the period beginning September 1, 2020, and ending on December 31, 2020.
According to the Treasury Department, employers will be responsible for repaying the total applicable taxes deferred between January 1 and April 30, 2021. Interest, penalties and additions to the taxes will begin to accrue beginning May 1, 2021.
The guidance states that employers may make arrangements to collect the total deferred payroll taxes from the employee.
Implementation of this payroll tax holiday is optional for employers, but questions do remain. For instance, it is unclear who will pay the tax liability if an employee leaves or if one is unable to pay.
We expect more guidance to be released in the coming weeks, but at this time and we will continue to monitor the situation and keep you informed.
Nina M. Daigle, CPA, is a partner with Antares Group, Inc. She can be reached at firstname.lastname@example.org.