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Coronavirus (COVID-19) Alert: Employers Need to Evaluate Risks Associated with Employee Social Security Payroll Tax Deferral

September 4, 2020

Amie Carmack - Raleigh Employment Lawyer - Workforce Attorney
Partner Amie Carmack

As you may have heard, President Trump issued an executive order a few weeks ago allowing employers to defer (delay) certain payroll tax withholdings that would otherwise be due on wages paid in September – December 2020 pay periods (a link to the Order is below).  It is important to understand that this is a deferral, not a waiver of the obligation to pay these taxes, that the deferral only applies to the employee share of social security tax applicable to employees who are paid taxable wages of less than $4,000 in a bi-weekly pay period (or equivalent threshold for other pay periods), and that participation is optional. (a link to the IRS Guidance on the Order is below)

As the law currently stands, the deferred taxes will be required to be withheld and paid by employers on January – April 2021 payrolls, on top of the withholdings that will normally apply to those pay periods, which would be a financial burden to many employees in those periods.  Further, the deferred taxes will have to be paid by the employer regardless of whether the applicable employees are still employed and being paid wages from which the deferred taxes may be withheld, creating collection burden and financial risk for employers.  The Order directs the Treasury Secretary to explore avenues to waive the obligation to repay the deferred taxes, but the likelihood of that happening is uncertain since such a waiver would likely require legislation and neither Republicans nor Democrats in the legislature have been on board with the Trump administration’s prior proposals for a payroll tax holiday.

As a result of these uncertainties and other factors, many employers have decided not to participate in this payroll tax deferral program, at least unless and until it is clear that payment of the deferred taxes will be waived. 

Although not required, it is a good idea for employers to provide an official notice to employees regarding how they are handling possible payroll tax deferral.

Executive Order: https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/

IRS Guidance:  https://www.irs.gov/pub/irs-drop/n-20-65.pdf

If you need help with your planning or working through scenarios that present themselves in your workplace, we are here to help.  For assistance, please contact Morningstar Law Group Partner Amie Flowers Carmack (acarmack@morningstarlawgroup.com or 919.590.0394).