Earlier this month, President Trump’s issued an Executive Order allowing your employees earning less than $4k per bi-weekly pay period to defer having Social Security withheld from their pay starting September 1, 2020 and continuing through the remainder of 2020.
The Whitehouse Memorandum of Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster is available at: https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/.
When you pay your staff, you withhold federal income taxes and state income taxes from their gross pay. You also withhold Social Security taxes at 6.2% and Medicare Taxes at 1.45%. The 6.2% Social Security tax is what your employees can defer as of September 1st. Let’s say you have an employee who earns $1,000 per week. Under this Executive Order, you can stop withholding Social Security taxes totaling $62 per week from that employee’s pay for the remaining four months of the year, and then withhold and remit those deferred Social Security taxes during the first four months of 2021.
Just a few days before this interest-free government loan to employees earning less than $4k per bi-weekly pay period was to take effect, the IRS finally issued Guidance To Implement Presidential Memorandum Deferring Certain Employee Social Security Tax Withholding at: https://www.irs.gov/newsroom/guidance-issued-to-implement-presidential-memorandum-deferring-certain-employee-social-security-tax-withholding. According to the IRS, “Today’s notice postpones the time for employers to withhold and pay employee Social Security taxes.”
Also included on that webpage is a link to Notice 2020-65, the Administrative Procedures regarding this stimulus item, at: https://www.irs.gov/pub/irs-drop/n-20-65.pdf.
What makes this stimulus most challenging is that you as the employer will be required to withhold and remit the deferred Social Security taxes from each affected employee between 1/1/21 and 4/30/21. How exactly will that work? Who will keep track of each employees deferred taxes? And what happens if an employee with deferred Social Security taxes quits or gets fired before repaying the full amount?
The exact wording of the IRS guidance for repaying these deferred taxes isn’t very helpful as follows:
An Affected Taxpayer must withhold and pay the total Applicable Taxes that the Affected Taxpayer deferred under this notice ratably from wages and compensation paid between January 1, 2021 and April 30, 2021 or interest, penalties, and additions to tax will begin to accrue on May 1, 2021, with respect to any unpaid Applicable Taxes. If necessary, the Affected Taxpayer may make arrangements to otherwise collect the total Applicable Taxes from the employee.
Hopefully more comprehensive and easy-to-understand guidance will be forthcoming.