On August 8th, 2020 President Trump signed an Executive Order directing the Secretary of the Treasury to defer Employee Social Security (OASDI) taxes that would otherwise be withheld through payroll tax deductions beginning September 1 through December 31, 2020. The order applies to those earning less than $104,000 per year. It is important to note that the Order provides for deferral of tax liabilities, not forgiveness. If you missed it, you can watch our quick summary video of the Order here.
The Secretary of Treasury has repeatedly stated that implementation of this deferral is optional for employers, as they maintain responsibility for collecting and remitting the tax due.
Homework Solutions recommends that employers continue to withhold Social Security taxes from employee pay to minimize risk that you must pay these taxes on behalf of a separated employee, and to reduce the risk that your employee is surprised by a large tax bill or reduction in their take home pay next year when deferred taxes would be withheld along with taxes on current earnings.
The IRS has recently provided guidance on implementation of the deferral authorized by the Executive Order and we can summarize here:
- Deferred Social Security taxes (6.2% of gross pay) attributable to wages paid between September 1, 2020 and December 31, 2020 may be collected from employee pay between January 1, 2021 and April 31, 2021.
- Deferred taxes are due to be paid by the employer on April 30, 2021, regardless of whether or not the employer was able to collect the taxes from the employee.
- Employers may make arrangements to otherwise collect the deferred taxes from the employee.
On the surface, a “payroll tax holiday” sounds great, but this one brings unnecessary risk for both employer and employee. For this reason, the default position of HomeWork Solutions (and that of most employers and payroll services) is that employers should continue to withhold taxes from employee pay.
If you are an employer who would like to take advantage of the deferral authorized in the Executive Order, please contact your payroll specialist by calling us at 800.626.4829 or by email at firstname.lastname@example.org