Fiscal Report
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Another Kind of Deferral: Employee Social Security Taxes

On August 8, 2020, President Donald Trump issued a Presidential Memorandum providing for the deferral of the employee portion of Old-Age, Survivors, and Disability Insurance (OASDI)—commonly referred to as Social Security taxes.

OASDI is currently 6.2% of eligible wages. Medicare contributions of 1.45% of eligible wages are also required, and together they are technically referred to as Federal Insurance Contribution Act (FICA) taxes. Both the employee and the employer are required to make these contributions. The federal Coronavirus, Aid, Relief and Economic Security Act (CARES Act) provided a deferral of the employer’s share of Social Security taxes for the period of March 27 through December 31, 2020 (click here for more information). Now the employee’s share of Social Security taxes can be deferred for the period of September 1 through December 31, 2020.

The Presidential Memorandum, along with Internal Revenue Service (IRS) Notice 2020-65, indicate the following:

  • Only the 6.2% employee OASDI portion is eligible for this deferral
  • Employees with gross wages of less than $4,000 biweekly (or the equivalent as adjusted for the employer pay cycle) are eligible for the deferral
  • Implementation of the deferral means that the employee’s portion of OASDI is not withheld by the employer, and therefore is not remitted to the IRS, for the period of September 1 through December 31, 2020
    • During the pay periods of January 1 through April 30, 2021, the deferred OASDI employee contribution is withheld in addition to the OASDI applicable to those pay periods—a total of 12.4% of applicable wages—and all withholdings are remitted to the IRS during this time frame
    • Interest and penalties will accrue on any outstanding deferred OASDI due on May 1, 2021, and it is up to the employer to make arrangements to collect any taxes due from employees participating in the deferral 

There are many unanswered questions about the actual implementation of this employee OASDI deferral. For example, the IRS Notice uses language that appears to require employers to implement the employee OASDI deferral for the applicable employees, but there are no penalties specified if the employer does not implement the program. In an interview on August 12, 2020, Treasury Secretary Steven Mnuchin confirmed that the program is voluntary. 

Employers that choose to offer this deferral to employees, absent any further guidance from the IRS or the Treasury Department, should consider the following:

  • Offering the program as an option for employees that meet the gross wage amount eligibility requirement, along with communicating the parameters of the program and the impact on the employee’s paychecks during the deferral period (September through December 2020) and, conversely, during the payback period (January through April 2021)
    • It should be emphasized that this is not an “OASDI holiday,” but a temporary deferral that must be paid back later
  • Preparing a form that the employee signs in order to opt into the program
    • Include authorization to withhold any deferred OASDI from the final paycheck if the employee separates from employment during the deferral or payback period
    • Include acknowledgement on the part of the employee that the employee is responsible for remitting any remaining deferred OASDI, along with applicable penalties and interest, to the IRS.

Since we are already past September 1, 2020, payroll deadlines are looming, and detailed guidance may still be forthcoming, we urge employers that are considering this program to consult with legal counsel on how to proceed.