About Employee Social Security Withholding Deferral
1. IRS guidance issued to implement Presidential Memorandum deferring certain employee Social Security tax withholding
On August 8, 2020, President Trump issued a Presidential Memorandum directing the Secretary of the Treasury (Secretary) to use his authority pursuant to section 7508A of the Internal Revenue Code (Code) to defer the withholding, deposit, and payment of certain payroll tax obligations.
1.1 Applicable Wages
The employee Social Security tax deferral may apply to payments of taxable wages to an employee that are less than $4,000 during a bi-weekly pay period.
The determination of Applicable Wages is made on a pay period by pay period basis starting September 1, 2020, through December 31, 2020.
1.2 Payment of Deferred Applicable Taxes
The due date for deferred employee Social Security taxes is postponed until the tax period beginning on January 1, 2021, and ending on April 30, 2021. Deferred payroll taxes not paid during this period will be subject to interest and penalties.
2. The choice to defer Social Security tax is optional.
3. If your company will defer employee Social Security taxes, please make sure both you and your employees understand:
3.1. This is a deferral of the payroll tax and not an exemption.
3.2. The deferral would only apply to the Social Security portion of employee wages.
3.3. The deferred Social Security taxes must be paid back between January 1 and April 30, 2021. Deferred payroll taxes not paid during this period will be subject to interest and penalties.
3.4. You must collect the deferred Social Security Tax in the period from January 1 through April 30, 2021. Employees may need to sign a contract agreeing to the additional withholding.
3.5. You must plan the possibility that employees leave the company, or employees don't make enough income to pay back the deferred taxes.
3.6. Withholding additional deffered Social Security taxes will result in less net payments for employees in the period from January 1 through April 30, 2021.
4. Who need to update software
If your company will defer employee Social Security taxes, you need to update ezPaycheck or ezAccounting software.
5. How to Update Software
5.1 We have updated both ezPayroll software and ezAccounting software to support the SS deferral.