Social Security Tax Deferral Raises Questions and Concerns

While we’ve been made aware of President Trump’s executive order allowing a deferral of the employee’s portion of FICA or social security tax (6.2% of wages), the Treasury just released Notice 2020-65 providing some additional guidance on the topic. Unfortunately, many questions remain unanswered.

The notice advises that this deferral applies to wages paid from September 1, 2020 through December 31, 2020 that are less than $4,000 on a biweekly basis or the equivalent thereof. If an employee’s pay is greater, the wages are not eligible for the deferral. The determination is made on a period by period basis. The deferred taxes owed at December 31, 2020 must be repaid ratably by the employer during the period January 1, 2021 through April 30, 2021.

Anchin Observations

• The deferral of these taxes will create a double withholding requirement on employees during the first quarter of 2021.
• No clear guidance has been given on whether or not an employer’s participation in this program is voluntary or mandatory. While not authoritative guidance, we refer you to a comment made early in August by Treasury Secretary Mnuchin that infers that an employer’s participation in this program is optional.
• The repayment of the payroll taxes in 2021 are the responsibility of the employer. This could create additional costs for an employer related to any employees that leave, especially if they have a transient workforce. How does an employer make arrangement to collect such taxes from former employees?

Please contact your Anchin Relationship Partner to discuss any questions you may have regarding this program. We will continue to update you as further guidance is released.