On August 8th, the Presidential Memorandum on Deferring Payroll Tax Obligations was released. This order focused in on the Social Security tax deferral. Here are some other important facts about this order:
- This is NOT a tax cut, it’s deferral only. The deferred amount will have to be paid back.
- The deferral only impacts the 6.2 % Social Security tax.
- Taxes are only deferred between September 1st and December 31st, 2020.
- It is NOT mandatory, it’s simply available to those under the eligible threshold.
When issued, some critical details were unclear, such as when and how the deferred taxes had to be paid back. Recently, we’ve received an update and guidance on a couple key points. We now know the following information regarding how the tax deferral will be handled:
– Employees that take the deferral must pay double in Social Security Taxes from January 1 through April 30, 2021 in order to repay the deferred amount.
– If an employee leaves your company during this payback period, you are required to pay any un-repaid taxes on their behalf.
It’s important to carefully consider the impact of the deferral, for both employees and employers. You’ll want to consult with your accountant in order to determine the best path for your company to take regarding participation in this program. In the meantime, we’re watching closely for additional guidance from official sources, and will update you on new developments.
The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.