The Internal Revenue Service (IRS) recently issued guidelines which allow employers to defer withholding and payment of Social Security tax for employees whose wages are below $4,000 biweekly, or equivalent amounts, with respect to other pay periods, for wages paid September 1 through December 31, 2020.

This move is optional, and simply postpones employer payment of payroll taxes until April 30, 2021.

Employers considering this move need to understand the following:

  • Employers remain liable to collect from employees and pay to the IRS after December 31, 2020, the full amount of the employee Social Security taxes deferred.
  • Employers are required to withhold the total taxes deferred for an employee from the employee’s wages ratably for the four-month period from January 1 – April 30, 2021.
  • The employer is still obligated to pay the total deferred taxes even if the employee is no longer employed with the employer for the full four-month period. This includes the total deferred taxes to the IRS. Interest, penalties and additions to tax will begin to accrue on May 1, 2021.
  • Employers are permitted to otherwise collect the total taxes due from the employee, but the guidance is silent on how an employer may do so.

Keep in mind that this is a deferral !

Nothing in the IRS memorandum explicitly forgives this amount nor can it without an act of Congress. It does specifically state that amounts deferred will not be subject to penalties, interest, additional amounts, or additional tax until their due date.

Question of the Week

Q: I have an employee asking me to defer their taxes. Do I have to offer this?

A: NO…this is optional, and at the discretion of the business owner.

Jill Kuksa & Deb Hanselmann