Like most employers, you probably had a lot of questions when you first heard about the executive order payroll tax deferral. But thanks to the IRS’s recently released guidance on the employee Social Security tax deferral, we have some answers.
If you haven’t heard the latest buzz on the employee Social Security tax deferral, we’ve got your rundown. To start, it’s not mandatory. Employees still owe the deferred money. And (the part you’ve been waiting for), employers are responsible for paying the postponed taxes.
The deferral period begins on September 1, 2020, so you have some decisions to make—fast. For more information on the employee Social Security tax deferral as it unfolds, read on.
Employee Social Security tax deferral: FAQs
The president issued four executive orders on August 8. One of them was the payroll tax deferral.
And on August 28, the IRS released much-needed guidance on how exactly this employee Social Security tax deferral works.
Take a look at this Q&A segment to find out what we know so far.
What is it all about?
The payroll tax deferral executive order lets eligible employees temporarily defer the employee portion of Social Security tax. Keep in mind that this is a deferral, not a cut. Under the current orders, employees owe the taxes back at a later time.
Employees’ wages are subject to payroll and income tax. Payroll taxes include Social Security and Medicare taxes, which collectively are known as FICA tax. The payroll tax deferral only applies to Social Security tax.
The employee portion of Social Security tax is 6.2%. Employers pay a matching 6.2% for the employer portion of Social Security tax. As an employer, you’re responsible for withholding the employee’s portion from their wages and remitting it to the IRS.
Through the deferral, certain employees can temporarily stop paying the employee portion. If they do, you would hold off on withholding and remitting payment to the IRS.
Who is eligible?
Not all employees are eligible for this deferral. Employees whose pay is less than $4,000 biweekly (before taxes) can opt into the Social Security tax deferral. This amounts to $104,000 annually.
Don’t pay employees biweekly? Simply take the annual threshold and apply it to your pay frequency. For example, employees must earn less than $2,000 per week ($104,000 / 52 weeks) to be eligible.
What about employers?
Because this deferral only applies to the employee portion of Social Security tax, you might feel a little jilted. But if you think employers are getting the short end of the stick, think again.
Employers have been able to defer their SS tax payment since March 27, 2020 thanks to the CARES Act.
Under the CARES Act, employers can defer the employer Social Security tax due between March 27, 2020 – December 31, 2020. And, you have a longer repayment period than employees get under the executive orders deferral.
If you defer the employer portion of Social Security tax, your repayment period is:
December 31, 2021 (50% of the deferred amount) December 31, 2022 (remainder)
So no, you are not included under the executive orders deferral. But, this is because you were already accounted for in earlier COVID-19 relief.
When is the deferral period?
The deferral period takes place between September 1, 2020 – December 31, 2020.
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