Executive Order Deferring Employee Social Security Tax: What You Need to Know

Executive Order Deferring Employee Social Security Tax: What You Need to Know 2496 1664 Balance Point Team

On August 8th, President Trump issued four executive orders to aid the U.S. economic recovery from the coronavirus. These orders included actions to provide relief related to student debt, unemployment, evictions, and one that could potentially have a bigger impact: deferring the collection of payroll taxes from employees through the end of 2020.

While the IRS has issued some guidance late Friday, August 28th, there are still some important questions to be answered.

What we know

  • This is a deferment of the employee portion of Social Security tax only (6.2% of taxable wages), not an exemption. While the President encourages the Treasury to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred,” at this point, it is not an exemption.
  • There is a wage cap of $4,000 per biweekly pay period. Presumably, the $4,000.00 will be converted to $2,000.00 for a weekly period, $4,333.33 for a semi-monthly period and $8,666.67 for a monthly payer.
  • The cap is a cliff. Example: an employee that earns $4,000.00 per pay, biweekly, can defer 100% of their social security obligations ($4,000.00 x 6.2% = $248.00).  Conversely, an employee earning $4,001.00 per bi-weekly can not defer at all.
  • The cap is applied per pay.
  • The deferment period runs from 9/1/2020 – 12/31/2020.
  • Repayment is due 1/1/2021 – 4/30/2021.
  • Penalty and interest will calculate after the 4/30/2021 final due date.
  • The program is optional to the employer.

What we do not know

  • While this program remains a deferment, it places the obligation on the employer to recollect any taxes deferred by their employees during the period or make up the uncollected taxes themselves.
  • There is suggestion from the IRS that employers will be able to recollect any outstanding amounts from the employee’s paycheck, but there is not any specific guidance available at this point.
  • It is unclear whether an employer can “opt-in” all employees into the program by default. It appears that it must be an individual employee’s choice.
  • Guidance is not available currently on the options an employer has available, to recollect outstanding amounts from a terminated employee.
  • There is not guidance on the ability to apply the deferment retroactively, in the event an employee decides they would like to take advantage of the deferment later in the deferment period.

An Evolving Situation

There is plenty of uncertainty surrounding this executive order, but you can rest assured knowing that Balance Point is closely monitoring all developments. We are in a position to provide our clients with first-class support (both technical and advisory) to navigate these changes with confidence.

Schedule a call with us to learn more.

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