Employee SS Payroll Tax Deferral Guidelines
In early August the President used his Executive Powers to provide for a deferral of employee social security taxes beginning today, September 1.
On Friday, August 28th, the Treasury released the much anticipated guidelines to accompany the Executive order. The guidelines did provide additional details but also left some issues unresolved.
The biggest takeaway is that with the guidelines the employer is in placed in a difficult position as to whether to opt in and comply with the order or to opt out and not defer the taxes for their employees. The pros / cons / risks are outlined below.
COVID-19 Deferring Payroll Taxes
On August 8, 2020, President Trump signed a memorandum on Deferring Payroll Tax Obligation. This directs the Treasury Secretary to defer the withholding, deposit and payment of employee social security taxes for wages paid beginning September 1 through December 31, 2020.
The 6.2% social security tax on wages is eligible for deferral for an employee whose wages are less than $4,000 in a biweekly pay period.
First the employer needs elect to opt in the deferral program and then employees can choose whether to participate or not.
For both the employer and employee there are Pros, Cons and Risks:
1. Gives employee a 6.2% benefit during the deferral period.
1. As currently structured the 6.2% deferral amount would need to be repaid during the period January 1 through April 30, 2021 (potential that amount may be forgiven if legislated).
2. Employer is responsible for paying back the deferral through additional withholding in 2021 or making repayment arrangements with an employee.
3. Employees could move in or out of deferral eligibility if wages move above $4,000 biweekly limit. Causes administrative burden.
4. Payback in 2021 could negatively effect employee cash flow during 2021.
1. If the employer opts out of the deferral plan and later the deferral is deemed forgiven by Congress the employee loses the benefit.
2. If the employer opts in, they are ultimately responsible to pay the deferral back. This risk is through future withholding or agreement with employee. Turnover of employees provides risk.
Observation: Since this is a deferral tax that needs to be repaid, the administrative burden and risk to the employer seem to outweigh the short-term benefit to the employee. However, if the deferral is legislatively forgiven than this deferral program makes more sense to implement.
At this point this social security deferral program has many unanswered questions. If you have any questions or want to consider implementing this program, please contact the Walz Group Payroll Department.
Tricky Tax Angles to Fringe Benefits
Tax rules for fringe benefits can be intricate and complex. Check out this article as it goes over which fringe benefits are taxable, tax-exempt, and special rules to keep in mind: