Employee Tax Deferral – Not So Fast

On August 28th, The US Treasury & IRS implemented President Trumps memorandum allowing employers the option to defer the withholding and payment of employees social security taxes for those who are paid $4,000 or less on a bi-weekly basis or equivalent for the period September 1 through December 31, 2020.

Consider the following before electing to implement:

  • Employers remain liable to collect and pay the tax after December 31, 2020, even if the employee has left your employment.
  • If the employee is still in your employ, you will be required to withhold and pay the back tax for four months beginning January 1, 2021.  This withholding will be addition to the regular social security tax.  So an increase in the employees paycheck now, means a decrease in the employees paycheck next year.
  • Should the taxes not be repaid by May 1, 2021, the employer will still be held liable for the tax plus any penalties and interest.

For more information on this see IRS Notice 2020-65.  You can find here:  https://www.irs.gov/pub/irs-drop/n-20-65.pdf