Employee Social Security Tax

IRS Notice 2020-65 Regarding Employee Social Security Tax Deferral

On August 28 of 2020, the IRS released a notice regarding the Employee Social Security Tax Deferral. While you can find the full notice here, it may be difficult to read and understand. For this reason, we have provided the following highlights and key ideas to consider.  

Employee Social Security Tax Deferral

First, the Employee Social Security Tax Deferral notice uses certain terms to define whom the document affects. These terms may not be clear. For instance, “affected taxpayers,” refers to employees required to pay or withhold the employee share of social security tax. Please refer to IRC 3102(a) or RRTA tax (3202(a)). Additionally, the document’s “applicable wages,” are IRC 3121 (a) wages (SS and Medicare wages)) paid to an employee during the pay period between September 1, 2020, and December 31, 2020. These wages are applicable if the biweekly wages are less than the threshold amount of $4,000 or the equivalent threshold for other pay periods. Notably, determining which wages are applicable is based on a pay-period-by-pay-period basis.

This IRS notice is equally as important to both employees and employers. The notice indicates the type of wages and compensation covered and places the burden on the employer to withhold and pay back the deferred amounts next year. The due date for Affected Taxpayers (employers) for the tax is postponed until the period between January 1, 2021, and April 30, 2021. Employers must withhold and pay the total deferred taxes “from wages paid between January 1, 2021, and April 30, 2021”. On May 1, 2021, interest, penalties, and additions to tax will accrue with respect to any unpaid taxes. If necessary, the employer may make arrangements to otherwise collect the total taxes from the employee.

Although published, the Employee Social Security Tax Deferral document left major questions unanswered. One being what employers should do if employees defer taxes but leave the company before the start of 2021. This also applies to seasonal employees that will not receive a paycheck in 2021 and are unable to recoup the taxes.

Although the payment deadline is not until 2021, Steven Mnuchin, Treasury Secretary, deems participation as optional for any given company. Because of the uncertainty regarding repayment terms, Zetter HealthCare does not recommend participating in these deferrals at this time.