What does the new payroll tax deferral mean?

It appears these unprecedented times are affecting us all—even those in the White House. In early August, President Trump officially issued an executive order for a payroll tax deferral to begin September 1, 2020.

What is the new payroll tax deferral and who does it help?

• Payroll tax relief only applies to the employee’s 6.2% share of Social Security, not the 1.45% Medicare nor the employer’s share.
• Deferral begins September 1st and runs through December 31, 2020.
• Payroll tax relief only applies to employees with a biweekly pre-tax paycheck of less than $4,000. The maximum deferral is $2,149 ($8,666 x 4 months x .062)
• The employee is expected to repay the deferred payroll tax through additional payroll withholding between January 1, 2021 and April 30, 2021.

It sounds generous on the surface, but this is a deferral that is expected to be paid back by the employees in early 2021. It is unclear who will be responsible for paying it back if the employee is no longer employed as of January 1, 2021. It is also unclear how the payroll tax deferral interacts with state and local laws and collective bargaining agreements.

It is possible that the payroll tax deferral will be forgiven by Congress in the future but that remains unknown.

Please let us know if you would like to defer your employee’s social security tax beginning September 1, 2020 through December 31, 2020. Contact us here.