What the Social Security Payroll Tax Deferral Means for You

The executive order regarding Social Security payroll tax deferral that was signed on August 8th has now taken effect. Synergy is your HR partner, and it’s our job to talk you through what the new law means for your business and employees.

What Is the Law?

According to the language of executive order and IRS guidance in formal Notice 2020-65, employers have the option to defer withholding for the employee portion of Social Security tax payments from September 1st, 2020 through December 31st, 2020. This tax deferral only applies if the amount of wages or compensation paid to an employee during a bi-weekly pay period is less than the threshold amount of $4,000, or the equivalent threshold amount with respect to other pay periods. As the law stands, these deferred tax payments will need to be paid by the employee between January 1st, 2021 and April 30th, 2021. Interest and penalties in addition to the tax due will begin to accrue in May.

What Should You Do?

While you have the option to defer employee social security payroll taxes, it does not mean you have to. There are several factors that may go into your decision.

  • You do not have to participate in the payroll tax deferral immediately and can choose to wait and see how the first few weeks of the law unfold in practice before making the decision.
  • It’s important to reiterate that, as the law stands, these taxes are not forgiven. They will need to be paid, and there are scenarios where the IRS may later deem the employer responsible for unpaid employee taxes. For example, if an employee is no longer with the company in 2021, can you still arrange to have them pay their deferred taxes?
  • The employer portion of Social Security tax must still be contributed normally.
  • Consider any state laws, union contracts, or collective bargaining agreements that apply to your workforce as they may make it difficult to participate.
  • What do your employees want? Many have heard news about a tax holiday and may not understand that they would still have to pay those taxes back. Consider getting their input and clearly communicate the reasoning behind your decision.
  • What would this mean for your payroll system? Can it handle a change like this smoothly?

Ultimately, the decision to participate or not is up to you and Synergy supports you either way. If you do decide to roll out this tax deferral to employees, please complete and return this election form to your Synergy HR representative. This form means you accept liability if an employee is no longer employed at the time of repayment if the IRS deems employers responsible.

If you’re not sure what to do or have questions, contact your Synergy HR representative. They’re here to discuss what might be best for your business.