The President recently signed an order giving employers the option to defer the withholding of employees’ Social Security taxes from September 1 – December 31, 2020. However, these deferrals would then need to be repaid between January and April of 2021. Since the order is not a mandate and may cause significant issues for both staff and employers, most employers have not implemented the deferral. Click here to read the full memorandum.
Carnegie Library of Pittsburgh has long provided resources for the best-quality information in the service of the public in Pittsburgh and beyond. It is our hope to keep you informed and working to avoid misinformation. Here are several points to review in regards to the payroll tax deferral:
- September 1st was the first day of President Trump’s payroll tax deferral, a temporary suspension of the 6.2% Social Security tax that employees cover. It’s in effect until the end of 2020.
- Employers would likely be required to collect and remit the deferred tax, which they must do by April 30, 2021 or else face penalties, interest and additional tax.
- Not all employers may take up the deferral, so you’ll want to talk to your human resources or payroll representatives to see how your company will proceed.
It is important to note the following when learning more about how the payroll tax deferral will affect you or your employees in 2020/2021:
- Your employer may not offer the holiday – The onus is on employers, if they participate, to withhold and pay workers’ deferred taxes early next year. Whether it’s the magnitude of the responsibility, the rapid rollout of the guidance from the IRS or the complexity of explaining the details to employees, there will be firms that back away from providing the holiday altogether.
- This is only a delay – Just as all holidays must come to an end, any amounts that you don’t pay from September through December 2020 will be withheld from your pay in January 2021. Participating employees will get a 6.2% bump in wages now, but they’ll see a decrease early next year as employers recoup the deferred amounts and continue covering the ongoing payroll tax. Plan ahead by saving the extra bit of cash you get this fall so that you can prepare for a drop off in cash flow early next year.
- Deferred taxes will be withheld in even amounts next year – When your employer recoups the deferral next year, you’ll see the amount deducted evenly from January 1 through April 30, 2021. However, employers and payroll providers are still hashing out what might happen to seasonal workers and employees who leave prior to the deferral being repaid.
- Are you getting a bonus? You might not get a deferral for each pay period – The deferral applies only if the amount a worker earns is under $4,000 bi-weekly. However, with bonus season coming up, workers who receive that extra pay in a pay period may end up with bi-weekly wages that are too high for the deferral in that particular paycheck.
- Just over $4,000 in biweekly pay? No deferral for you – The $4,000 threshold in a biweekly pay period is a “cliff” and not a phase-out. This means that while a worker with $3,999 in earnings would qualify for the deferral, an employee earning $4,001 would not.
The IRS issued guidance on the presidential memoranda, and additional tax relief related to the COVID-19 pandemic can be found on IRS.gov. For more information, visit this FAQ page from the IRS Newsroom.
Note: Carnegie Library of Pittsburgh will also wait for further guidance and development before considering action on this issue.