Employee Social Security tax deferral: What should be considered?

By Thomas J. Schultz, PHR, SHRM-CP, CLA (CliftonLarsonAllen, LLP)

On August 8, 2020, the President issued a presidential memorandum directing the Treasury to allow employers to defer the 6.2% social security tax withholding on most wages paid from September 1, 2020 through December 31, 2020.  So what does that mean for employers?

One of the first things that needs to be taken into consideration is that the Presidential memo does not eliminate the tax.  Employers can choose whether to participate in the deferral.  The memo provides a mechanism for the deferral of the 6.2% social security tax withholding on most wages paid from September 1, 2020 through December 31, 2020.  Employees of organizations choosing to take advantage of this deferral will see an increase to their paychecks during the time that the deferral is made. However, employers need to clearly communicate that the social security tax withholding will have to be recovered from future earnings.  The required repayment must be done through additional withholdings between January 1, 2021 and April 30, 2021, effectively doubling the social security withholding on wages paid early next year. This means that future deductions will have to be taken in order to “catch up” the deferred social security tax withholding.

What happens if an employee leaves before repaying the deferred taxes? While guidance in limited, employers are liable for the deferred Social Security taxes. As of this article, the deferred taxes would remain the responsibility of the employer to repay and could be collected from a last paycheck, if one was available.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment, or tax advice or opinion provided by CliftonLarsonAllen LLP (CliftonLarsonAllen) to the reader. For more information, visit CLAconnect.com.