On August 8th, the White House issued the Presidential Memorandum on Deferring Payroll Tax Obligations. This order discussed the tax deferral which allows employees to temporarily defer their Social Security taxes. At the time it was issued, there were some critical details left out, such as how and when the deferred amount would be paid back.
Here are some things you should know about this order:
- This is not a tax cut, it’s only a deferral. The amount that is deferred will have to be paid back.
- Taxes are deferred for the period of September 1st through December 31st, 2020.
- Participation isn’t mandatory, it’s simply an option for those under the earning threshold.
- The deferral only impacts the 6.2 % Social Security tax.
Recently some updated guidance was offered to clarify key points about the order. We now know the following information regarding how the tax deferral will be handled:
– Employees taking the deferral have to pay double in Social Security Taxes from January 1 through April 30, 2021. This is how the deferred amount is paid back.
– If an employee leaves a company during this period of payback, your company is required to pay any un-repaid taxes on their behalf.
As you can tell, both employers and employees face some repercussions if they take the tax deferral. For this reason, it is important to carefully weigh the impact of the deferral. You will want to discuss this with your accountant in order to determine the best path for your company to take.
We will be watching closely for additional guidance from official sources regarding the tax deferral, and will bring you any 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.