COVID-19 Small Business Resource Center

President Trump Issues Memo on Deferring Payroll Tax Obligations

Updated: August 28, 2020

President Trump signed a memorandum on August 8, 2020 that directs the Treasury Secretary to defer the withholding, deposit, and payment of employee Social Security taxes for wages paid beginning September 1 through December 31, 2020.

The deferral will be available to any employee whose wages are less than $4,000 in a biweekly pay period, or the equivalent amount with respect to other pay periods.*

Background:

  • Employees pay a 6.2% Social Security tax on wages up to an annual limit ($137,700 in 2020).
  • Employees also pay Medicare tax, but this is not affected by the executive memorandum.

Memorandum:

The memorandum provides that amounts deferred "shall be deferred without any penalties, interest, additional amount, or addition to the tax." It also directs the Treasury Secretary to "explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum."

New Guidance Issued on Deferral of Employee Social Security Tax

Updated: October 28, 2021

The U.S. Treasury Department and Internal Revenue Service (IRS) have issued Notice 2020-65, implementing the recent Presidential Memorandum that allows employers the option to defer (i.e., postpone) withholding and payment of Social Security tax for wages paid September 1, 2020 through December 31, 2020.

Key Takeaways:

Employers considering whether to defer employee Social Security taxes should be aware of the following key takeaways from the Notice:

Liability:

Employers are liable for collecting and paying the full amount of employees' deferred Social Security taxes to the IRS after December 31, 2020.

Repayment:

Employers are required to withhold the total taxes deferred for an employee from the employee's wages in equal amounts per pay period from January 1, 2021 to December 31, 2021 (previously April 30, 2021). This withholding will be in addition to the normal Social Security tax due for 2021 wages paid during the same period, which may cause some questions and concerns.

Note: On December 27, 2020, President Trump signed legislation that extended the repayment period for any amounts deferred from April 30, 2021 to December 31, 2021. As a result, participating employers should generally offer employees who elected the deferral a one-year repayment schedule, which would reduce per-paycheck deduction amounts. However, employees may prefer to retain the four-month repayment schedule, which would result in roughly corresponding amounts withheld from 2021 paychecks compared to amounts deferred from 2020 paychecks.

Employee separations:

If an employee isn't employed with the employer for the full four-month period, the employer is still obligated to pay the total deferred taxes to the IRS. Interest, penalties and additions to tax will begin to accrue on January 1, 2022 (previously May 1, 2021). In the event that an employee won't be employed through December 2021, the employer should make arrangements to collect all amounts deferred from the employee.

When obtaining employee elections to defer (see below), consider requiring employees to acknowledge that deferred amounts will be withheld from wages beginning in January 2021, and that the company may also use other arrangements if necessary to collect any deferred taxes, including from employees who separate employment before the full amount of deferred taxes is withheld.

Employee election to defer:

The Notice doesn't obligate employers to defer employee Social Security taxes, and Treasury Secretary Steven Mnuchin has described the program as optional for employers. Both the Notice and Presidential Memorandum are silent, however, on whether employers must first obtain the affirmative opt-in of employees before deferring their employee Social Security taxes. Because the current program is merely a deferral of taxes lasting only a few months, many employees may prefer that taxes not be deferred.

Employers that wish to offer this option should consider providing employees with a detailed explanation. Employees who wish to defer their Social Security tax should make an affirmative election to do so and employers should maintain a copy of such elections. ADP® has prepared a sample notice employers can use for this purpose.

REPAYMENT OF TAXES FOR ADP CLIENTS:

ADP is preparing to assist clients with the repayment of their deferred Social Security taxes. Deferred Employee Social Security taxes must be paid back by 12/31/2021 to avoid failure-to-deposit penalties:

Reporting Requirements:

On the 2020 Form W-2, employers should:

  • Include any wages for which they deferred withholding and payment of an employee’s Social Security tax in Box 3 (Social Security Wages) and/or Box 7 (Social Security Tips).
  • Not include any amount of deferred employee Social Security tax that has not been withheld in 2020 in Box 4 (Social Security Tax Withheld).
Employee Social Security tax that was deferred in 2020 and is subsequently withheld in 2021, and was not reported on the 2020 Form W-2, should be reported in Box 4 (Social Security Tax Withheld) on a 2020 Form W-2c, Corrected Wage and Tax Statement.
  • On Form W-2c, employers should enter tax year 2020 in Box C and adjust the amount previously reported in Box 4 (Social Security Tax Withheld) of the 2020 Form W-2 to include the deferred amounts that were withheld in 2021.
  • All Forms W-2c should be filed with SSA, along with Form W-3c, Transmittal of Corrected Wage and Tax Statements, as soon as employers have finished withholding the deferred amounts.

For a summary of guidance, FAQs, and other resources, go here.