Background on the Tax Deferral
Per IRS Notice 2020-65, the notice provides the employer with the option to defer the withholding, deposit, and payment of the employee portion of the Social Security Tax of 6.2% on wages/compensation paid between September 1, 2020-December 31, 2020 (Applicable Wages).
However, the deferred withholding must then be ratably withheld from the employees and deducted from their wages/compensation and paid by the employer between January 1, 2021-April 30, 2021. Interest, penalties, and additions to tax will begin to accrue on unpaid taxes on May 1, 2021.
Does this apply to all of my employees?
The deferral of the 6.2% Social Security tax applies to any employee whose pre-tax wages/compensation during any bi-weekly pay period is generally less than $4,000, or the equivalent threshold amount with respect to other pay periods.
Under the IRS notice, the determination of Applicable Wages is made on a pay-period-by-pay-period basis.
Am I able to opt-out and continue to withhold the employee portion of the 6.2% Social Security Tax?
Based upon the current guidance from the Treasury Department, it appears that the deferral by the employer is optional.
Who is responsible for paying the taxes?
The employer remains responsible to collect and remit any deferred taxes.
Please note that the employer must still remit the payroll taxes even if the employee had taxes deferred and then leaves or is terminated before they are repaid.
If necessary, the employer may make arrangements to otherwise collect the total deferred taxes from the employee.
There are still unanswered questions about the payroll tax deferral. Please check back on the H2R CPA website for further revised information as it becomes available.
As always, if you need assistance with this matter, please feel free to contact your H2R CPA liaison and we will be happy to assist you.