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Temporary Deferral of Social Security Withholdings

The Internal Revenue Service’s Notice 2020-65, which allows employers to temporarily suspend withholding of employees’ contribution to Social Security taxes through the end of 2020, went into effect on September 1. It applies only to employees who earn less than $4,000 in a biweekly pay period or, for salaried employees, earn less than $104,000 per year.

Unless legislation is enacted by Congress, Notice 2020-65 is only temporary COVID-19 financial relief and must be repaid. Employers who choose to suspend Social Security tax withholding would need to withhold those amounts from their employees’ paychecks between January 1 and April 30, 2021. Although employees’ paychecks would appear bigger now, their paychecks next year would be less as they would be repaying the deferred taxes from 2020 in addition to the taxes accrued in 2021.  Employers that do not re-pay the deferred payroll tax by April 30 can be liable for IRS penalties and late fees.

The withholding suspension is mandatory for government employers, but voluntary for private-sector employers. Notice 2020-65 did not provide guidance for employers who deferred taxes from an employee that later left the company before fully repaying the deferred taxes. Currently, it appears employers are still responsible for repaying the employee’s share of Social Security taxes regardless if the employer can recoup that money from the former employee.

Businesses should carefully decide if they will defer employees’ contribution to Social Security taxes and the potential implications on their company.

Bailey Cummins, PHR, is a member of the HRinDemand team, a human resources company in Reno, NV, offering expert guidance and easy-to-use tools to help small businesses with employment regulations, compliance, employee relations, and company growth.  

Sources:

Society for Human Resource Management. (2020, August 31).  IRS Guidance Allows Workers a Payroll Tax “Holiday.” https://www.shrm.org/ResourcesAndTools/hr-topics/compensation/Pages/IRS-Guidance-Workers-Payroll-Tax-Holiday.aspx

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