Guidance Released on Deferring Employee Social Security Taxes

The IRS released guidance for employers regarding President Trump’s August 8, 2020 memorandum on withholding, deposit, and payment of employee Social Security taxes for the period of September 1, 2020 through December 31, 2020. Secretary of the Treasury Steven Mnuchin has since confirmed the deferral as voluntary and that employers may choose to continue to withhold and deposit employee Social Security taxes under the normal schedule.

The guidance clarifies that employees eligible for deferral are those with wages (for FICA purposes) of less than $4,000 per bi-weekly pay period or an equivalent amount for other pay periods. The deferral of eligibility determination must be made on a payroll-by-payroll basis. Any compensation not considered wages for FICA purposes does not count when making the determination of eligibility. It is also important to remember that ‘wages’ considered are not based on gross pay but are based on the amount of wages after nontaxable deductions.

Deferred Social Security taxes from wages earned from September 1 through December 31, 2020 must be withheld and paid in total from wages earned between January 1 and April 30, 2021. Deferred employee taxes deposited after April 30, 2021 will incur interest, late penalties, and additions to the tax. An employer can choose to collect the deferred taxes directly from the employee rather than through withholding. However, the employer is liable for the payment of deferred taxes regardless of how or if the employer collects them from the employee, even if the employee leaves the company.

Before electing to make any deferrals, check with your attorney and accountant to determine if the uncertainty and lack of detailed clarity is outweighed by the benefits to your business.

For further questions, please do not hesitate to reach out to one of our corporate attorneys.

For additional COVID-19 related information, go to our Coronavirus/COVID-19 Resource Center.

Posted by Attorney Hannah E. Mudd. Mudd is a member of Danna McKitrick’s transaction team. As a member of the team she advises clients on a variety of corporate and business transactions including entrepreneurial, real estate, banking, employment, and corporate formation and governance matters.

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