Payroll Tax Deferral

On August 8, 2020, President Trump issued a Presidential Memorandum suspending the collection and payment of Social Security payroll taxes from September 1, 2020 through the end of the year for workers making less than $4,000 in a bi-weekly pay period.

Guidance on this Presidential Memorandum was issued on August 28, 2020 by the U.S. Treasury Department and the Internal Revenue Service. Before making any decisions for your organization, we recommend you review the information provided by the IRS.

Adherence to this Presidential Memorandum is optional for employers. Employers who elect to comply with the Memorandum will remain liable for the collection of the deferred taxes and must remit to the IRS the full amount of the Social Security taxes that were deferred.

Employers will be required to withhold the total deferred taxes for an employee from the employee’s wages ratably between January 1, 2021 and April 30, 2021. The employer will be subject to interest and penalties on any deferred funds not remitted timely, with the penalties and interest beginning to accrue on May 1, 2021.

If an employee leaves the employer prior to April 30, 2021, the employer is still obligated to remit the total deferred taxes for that employee. Employers may “make arrangements to otherwise collect” the total taxes due from the employee if they cannot be collected via payroll.

Employers that defer collection and payment of taxes according to the Presidential Memorandum will be required to withhold the deferred taxes from wages paid between January 1, 2021 and April 30, 2021 in addition to the normal Social Security tax due for wages paid during that same period. Employers should consider carefully the impact that this double withholding will have on their employees in 2021.

Further guidance on the reporting requirements for this deferral are expected.

In discussion with our clients and other organizations within our network, we have found that the vast majority of companies are not participating in this payroll tax deferral due to the concerns regarding lack of clarity around the management of a deferral (as opposed to an exemption).

If you opt to comply with the Presidential Memorandum, you must ensure that your organization’s payroll technology is able to accurately support this measure. If you have not received specific guidance from your payroll partner, reach out to them before implementing any new codes. Additionally, it serves as a good reminder that if you implement, your organization will be responsible for the taxes by April 30, 2021.

Many employees have not shown support for the payroll tax deferral. As with any major decision impacting people’s pay, it is important to understand and respect the employee perspective.

What is your organization doing?

Additional Resources

• American Payroll Association
• ADP’s Eye on Washington PDF
• UKG (Ultimate and Kronos Group) Resources