IRS Releases Guidance on Employee Social Security Tax Deferral
The IRS released guidance to implement a presidential memorandum directing the Secretary of the Treasury “to defer the withholding, deposit, and payment” of the employee share of social security taxes on wages paid between September 1 and December 31, 2020 [Notice 2020-65, 8-28-20].
The IRS notice allows employers to defer the withholding and depositing of the employee share of social security tax on applicable wages paid between September 1, 2020, and December 31, 2020. In 2021, employers are then required to withhold the deferred amount from employees’ wages and compensation paid between January 1, 2021, and April 30, 2021, and make appropriate tax deposits based on the withholding date. If the deferred amounts are not paid by April 30, 2021, the IRS will assess interest and penalties. The notice also provides that, if necessary, employers “may make arrangements to otherwise collect” the taxes from the employee.
The memorandum limited the deferral to employees whose wages or compensation “during any biweekly pay period generally is less than $4,000, calculated on a pretax basis, or the equivalent amount with respect to other pay periods.” This limits the deferral to employees earning less than $104,000 per year. The notice clarifies that the determination of applicable wages is made on a pay period-by-pay period basis. If an employee’s applicable wages in a current pay period are below $4,000, the deferral is available for the pay period “irrespective of the amount of wages or compensation paid to the employee for other pay periods.”
Reporting the Deferred Amounts
On August 28, the IRS released a draft of a revised 2020 Form 941, Employer’s Quarterly Federal Tax Return, which includes lines to report the employee social security tax deferral. The amount deferred would be included in the amount reported on Line 13b (deferred amount of social security tax) and also reported on Line 24 (deferred amount of the employee share of social security tax included on Line 13(b)).
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Curtis E. Tatum, Esq., is Director of Federal Payroll Compliance for the APA.