Members may download one copy of ours sample forms and templates because that your personal use within her organization. Please note that every such forms and also policies need to be reviewed by your legal counsel for compliance through applicable law, and should it is in modified come suit her organization’s culture, industry, and also practices. Neither members nor non-members may reproduce such samples in any type of other method (e.g., to republish in a book or usage for a advertising purpose) without buzzpatterson.com’s permission. To request permission for certain items, click the “reuse permissions” switch on the page where you uncover the item.

You are watching: How does payroll tax affect social security


OK
*

Image Caption
Page Content

Update: Repayment period Extended because that Deferred Payroll Taxes

Under the IRS guidance authorize in august 2020, labor were allowed to defer withholding employees" re-superstructure of Social defense taxes indigenous Sept. 1, 2020 v Dec. 31, 2020. Originally, job were compelled to increase withholding and also pay the deferred quantities ratably from wages and also compensation paid between Jan. 1, 2021 and also April 31, 2021, and beginning on may 1, 2021, penalties and interest ~ above deferred unpaid tax liability would begin to accrue.

However, the Consolidated Appropriations Act that President trumped signed in ~ the end of 2020 expanded the repayment duration through Dec. 31, 2021. Now, penalties and also interest top top deferred unpaid taxes liability will certainly not begin to accrue until Jan. 1, 2022.

​On Aug. 28, the IRS issued notification 2020-65, enabling employers to suspend withholding and also paying to the IRS default employees" Social protection payroll taxes, as part of COVID-19 relief.

The payroll taxes "holiday," or suspension period, runs from Sept. 1 through Dec. 31, 2020, and applies only to employees whose salaries are much less than $4,000 because that a biweekly pay period, including salaried employees earning less than $104,000 per year.

Companies that suspend arsenal of employees" payroll taxes would collect extr amounts indigenous workers" paychecks from Jan. 1 v April 30 next year to repay the taxes obligation.

President Donald Trump sent a memorandum on Aug. 8 to the Treasury room to defer arsenal of the employee section of Social defense from Sept. 1 through the end of 2020.


buzzpatterson.com resource SpotlightCoronavirus and also COVID-19

Bare bones Guidance

At simply 2 1/2 double-spaced pages, an alert 2020-65 gives a minimum quantity of information and also leaves plenty of questions to it is in answered, maybe in follow-up guidance.

As to even if it is employers will comply through the notice and suspend employees" Social security FICA withholding, "It"s too early on to say," according to Pete Isberg, vice chairman of federal government relations at HR and also payroll solutions firm ADP Inc. Labor "are just now considering how the program would work."

Isberg stated that even if it is to suspend withholding that employees" payroll taxes was in effect "voluntary." back the language of the notice is directive, it consists of no penalties because that noncompliance.

It stays uncertain, however, how plenty of private-sector employers will certainly suspend collection of your employees" Social security taxes, and, if they decision to do so, when they might reasonably change their payroll equipment to stop withholding these taxes.

If employers suspend Social protection payroll taxes withholding because that eligible employees, the guidance walk not administer for allowing individuals to opt out, which had actually been an administrative concern employers had raised.

Adjusting Payroll Systems

Employers that usage a payroll firm have to look because that announcements on just how the tax holiday will work, including any kind of notices to employees, Isberg said. Provided that countless September payrolls were already processed in the closing mainly of August, prior to the guidance come out, "generally it will certainly be quickly after Sept. 1" before Social protection tax withholding can be deferred, he noted.

"Employers that maintain their very own payroll systems may need main or month to gain the technical job-related done, therefore it might be October, November or also later," that said, adding that "the IRS has said that any type of changes have to be prospective."

Employers Responsible because that Repaying count in 2021

Employers the suspend arsenal of default employees" Social protection payroll taxes during the four-month suspension duration must repay the deferred taxes come the IRS throughout the very first four month of 2021, unless law is spread to pardon the uncollected taxes.

"Employers will should withhold the total taxes deferred by every employee "ratably" end the four-month period," Isberg said, so "employees will notification reduced network pay in 2021 equal to any type of increase in net pay in 2020 if castle defer the tax."

After April 30, 2021, penalties, interest and also "additions come tax" will start to accrue ~ above employers for tax amounts that have not to be repaid, according to the guidance.

White House economic advisor Larry Kudlow has actually said, "We will take any kind of steps feasible to pardon this deferral" therefore employees would not be forced to pay ago tax amounts deferred with Dec. 31, The Hill reported. However, law so would certainly require brand-new legislation.

Democratic presidential nominee Joe Biden and also other Democrats have raised concerns that if these taxes are not at some point repaid, it could imperil the Social security fund.

Departing Employees

Employers, described as "affected taxpayers" in the guidance, "may do arrangements come otherwise collection the complete applicable taxes native the employee," the IRS said. 

But if an employer suspends collection of one employee"s Social security tax—which is 6.2 percent of his or she pay—during the last 4 months that this year, to it is in repaid by copy the employee"s Social security tax come 12.4 percent during the first four months of 2021, for instance, what happens if one employee leaves at the end of the year?

The employer continues to be liable for the employee"s share of Social defense taxes; the due day is just expanded to next year, follow to the guidance. The employer can make repayment arrangements with the employee, such as deducting the amount fan from the final paycheck. Otherwise, the employee would need to pay the balance owed.

There is nothing more specific in the accuse "about what happens as soon as an quits, and also there"s no means to gain that deferral back," tweeted Adam Markowitz, vice chairman at Howard l Markowitz PA CPA, in Casselberry, Fla. "The fact that this indict is 3 pages leaves method more inquiries than answers. For that reason alone, this is a tough pass."

Jonathan Barber, head that compensation and also benefits policy research at Ayco, a Goldman Sachs agency that provides financial counseling, said that "although the notification allows employers to make other arrangements to collect the deferred Social security taxes indigenous the employee various other than with payroll, it is no clear simply how far an employer can go to collection such amounts and what means—if any—the employee would have to enforce collection."

To Suspend Withholding or Not

Lisa Galletti, owner the LMG accounting & Payroll services in Ukiah, Calif., tweeted "don"t defer, carry on together usual and save you yourself the headache."

Still, some companies whose employees have struggled to do ends accomplish due to lessened wages or hours may think that worthwhile to offer their workers a bit much more in their paychecks now, to be repaid next year.

"Workers must know that right currently this is just a tax deferral, not taxation forgiveness, therefore it"s short-lived relief," stated Timothy Flacke, co-founder and also executive director of Commonwealth, a non-profit that concentrates on financial security for low-income Americans. But, he added, "it still to represent an opportunity for workers to start structure or including to an emergency savings account, without seeing any change in take house pay, through diverting the tax deferred amount right into savings. This additionally ensures employees will have savings top top hand" as soon as it"s time to repay the taxes out of next year"s paycheck, he said.

Barber to express a cautious view. "It is really just a an extremely short-term, interest-free loan," he said. "Employers will must evaluate whether employees would also appreciate this deferral. The additional amount being accumulated during the time period of repayment would median a lesser quantity of net pay climate what the employee is supplied to—which could result in more financial stress versus the advantage the deferral may have actually provided."

Update: part Questions now Answered

In a follow-up article, buzzpatterson.com Online looks in ~ answers to some common questions about the payroll deferral holiday, and also at issues employers are taking into consideration about whether they will certainly participate. View Employers Hesitant, confused Over Payroll tax Suspension.

Form 941 Revised

The IRS also released a draft variation of a revised kind 941, Employer"s Quarterly Federal taxes Return, come take into account Social protection withholding that is deferred native Sept. 1 to Dec. 31. "The key change is found on page 3 … i m sorry asks because that the "Deferred lot of the employee share of Social security tax included in heat 13b," " composed Ed Zollars, a taxes CPA in Phoenix and also author the the existing Federal Tax breakthroughs website.

Applicable Wages

legislation firm Covington & Burling"s taxes Withholding & reporting Blog points the end that notice 2020-65 states, in footnote 3, the compensation excluded indigenous FICA taxes does no count in do a decision of eligibility, based upon an employee having actually biweekly income of much less than $4,000. Payroll deductions into an employee"s wellness savings account or functional spending account, because that instance, space excluded native FICA taxes.

Zoller blogged that "amounts gotten rid of from incomes to pay because that health care under a cafeteria setup will offer to alleviate the lot of Applicable Wages, potentially enabling an employee who is simply over the border without a cafeteria setup deferral to qualify for a payroll taxation deferral by making together a deferral come the cafeteria setup (assuming the plan allows for such a deferral come be chosen at this point)."

Employer and Employee FICA taxation Relief

Social Security and Medicare payroll taxes are accumulated together as the federal Insurance contributions Act (FICA) tax. Social protection is sponsor by a 12.4 percent payroll tax on wages approximately employees" taxable revenue cap—$137,700 for 2020—with half (6.2 percent) paid by workers and also the other half paid by employers. Over there is no income cap on the Medicare section of FICA, for which employers and employees separately pay a 1.45 percent fairy tax.

The COVID-19-related payroll tax relief applies only to the society Security portion of FICA.

Separately, the Coronavirus Aid, Relief, and Economic defense (CARES) Act, enacted in March and also implemented through IRS notice 2020-22 and a series of IRS FAQs, permits eligible employers to defer the deposit and also payment of the employer"s share that Social security FICA taxes from March 27, 2020, v Dec. 31, 2020. The deferred payments need to be paid back to the Treasury Department, with half due through Dec. 31, 2021, and the other fifty percent by Dec. 31, 2022.

See more: How Do Illegal Immigrants Pay Taxes Without A Social Security Number (Itin)

The cares Act provision and related guidance walk not use to employees" share of the Social security tax, which was the emphasis of the president"s directive and also the new IRS guidance.

Related buzzpatterson.com Articles:

Employee Social protection Tax Deferral Guidance: also Little, as well Late?, buzzpatterson.com Online, September 2020

employers Hesitant, perplexed Over Payroll tax Suspension, buzzpatterson.com Online, September 2020

2020 Payroll Taxes will certainly Hit higher Incomes, buzzpatterson.com Online, October 2019

Related buzzpatterson.com Resources:

notification to employee of temporary Social defense Tax Deferral

notification to employees Explaining the Decision no to Defer Social security Tax Withholding