In early August 2020, executive orders to provide aid during the ongoing coronavirus crisis were signed. The guidance allows employers to “defer withholding and payment of the employee\’s portion of the Social Security tax” if an employee is paid less than $4,000 before taxes each bi-weekly pay period. The deferral applies to wages paid by employers beginning Sept. 1, 2020, and running through Dec. 31, 2020. These taxes are deferred, not forgiven—meaning the payroll taxes must be repaid between Jan. 1, 2021, and April 30, 2021.
What does this mean for employers?
Before the executive order, employers and employees split the 12.4% Social Security tax set for each employee, employers can defer the 6.2% portion of the employee\’s contribution but are required to pay the remaining 6.2% employer\’s contribution
Employers are responsible for repaying deferred taxes in 2021 but could withhold extra amounts from employees\’ pay from January to April 2021
If an employee is laid-ff or leaves the company, employers can deduct any amount owed from their final paycheck
The key message to communicate to employees is that a payroll tax deferral will result in a larger paycheck now in exchange for a smaller paycheck at the beginning of 2021.
If you have any questions about the payroll tax deferral, please feel free to reach out to the Cypress team.