PAYROLL TAX DEFERRAL
What this means for you
On Aug. 8, 2020, a Presidential Memorandum was issued allowing employers the option to defer withholding and payment of the employee’s portion of Social Security tax if the employee’s wages are below $4,000 on a bi-weekly basis. The relief is available for employers and generally applies to wages paid starting Sept. 1, 2020, through Dec. 31, 2020.
On the surface, this seems like a great benefit. Workers who participate in the president’s payroll tax deferral will see a temporary increase in their take home pay, but it’s not without consequences. Should you choose to go this route, your employees will likely see smaller than normal paychecks in early 2021.
Under this new rule, employers can stop withholding the 6.2 percent of the employee’s portion of Social Security tax from paychecks through the end of 2020. However, if you opt to participate, you’ll need to recoup that money by increasing the amount of taxes withheld from your employees’ paychecks from January through April 2021.
The result is that workers whose taxes are deferred would see bigger paychecks this year and smaller than normal paychecks next year, unless legislation is enacted to forgive the deferred taxes. At this point there is no indication that will happen.