On August 8, 2020, President Trump issued an executive order announcing that eligible employees can opt to not have the 6.2% of their wages, known as social security tax, withheld. Instead, those funds would go into their pockets now. The directive asked the Treasury Department to defer collection of the employee portion of social security tax on wages paid between September 1 and December 31, 2020.
Payroll Tax Holiday Deferral
On August 28, 2020, the IRS issued long-awaited guidance. However as has been the norm over the past several months, their guidance still leaves many questions unanswered.
A deferral means that it will be paid later. There is talk that the deferred tax will be forgiven, however, forgiveness will require legislation to be passed and it is already being argued that forgiveness will place a further strain on a social security system that is already struggling.
Payroll Tax Holiday Guidance
The guidance passed down from the IRS this past weekend states that eligible employees are those that earn less than $104,000 per year. The determination is made on a pay period by pay period basis. Therefore, if an employer is a bi-weekly payor, any employee earning less than $4,000 per pay period is eligible. The guidance also states that the employer is required to make arrangements with the employee to pay back the deferral ratably from January 1, 2021, through April 30, 2021. This seems to say that employees will have double the social security withholding in that time frame. Also, employers are responsible for making these arrangements. The guidance does not make any mention of what to do in the case of an employee who does not make enough to pay double the social security tax, or who is no longer in the employ of that employer. It also does not make mention of how employers or employees can individually opt-in.
So once again, we await further guidance to be able to make informed decisions and not jump into something that can cost our clients and their employees hardship in the long term.
How DHJJ Can Help
Please reach out to your DHJJ advisor to find out more information. We are actively monitoring this situation and will update you as more guidance becomes available. Call us att 630-420-1360.