On August 8, 2020, President Trump issued a memorandum on deferring payroll tax obligations. Under the terms of the memorandum, withholding, deposit and payment of the employee’s share of the 6.2% social security tax are deferred on wages paid during the period of September 1, 2020 and ending December 31, 2020.
The deferral only applies to employees with bi-weekly, pre-tax income of less than $4,000 (approximately $104,000 annual salary), or a similar amount if a different pay period applies. On August 28, 2020, the Department of Treasury and the Internal Revenue Service (IRS) issued guidance regarding implementation of the deferral. This information clarified:
- The deferral applies to wages paid to an employee beginning September 1, 2020 and ending on December 31, 2020;
- The deferral amount must be repaid between January 1, 2021 and April 30, 2021; and
- The obligation to repay is on the employer, not the employee.
It is still unclear as to whether employees can opt in or opt out of the deferral. This is simply a deferral of the tax, not a forgiveness. Employers choosing to implement the payroll tax deferral should communicate to employees that net checks in the beginning of 2021 will be lower. In addition, if an employee leaves employment prior to the end of 2020, the employer will still be responsible for the deferred amounts even if it is unable to obtain the amounts from the former employee. Employers are advised to proceed with caution if they are considering the payroll tax deferral.