Treasury, IRS Release Guidance on Employee Social Security Tax Deferral

31 August 2020

The Treasury Department and the IRS have issued guidance on the recent order by President Trump to defer the withholding, deposit, and payment of certain employee payroll tax obligations on wages paid from September 1, 2020, through December 31, 2020. Under the guidance:

  • the due date for the withholding and payment of the employee’s portion of the 6.2-percent old-age, survivors and disability insurance (OASDI) tax (Social Security tax) under Code Sec. 3101(a), and the employee’s portion of the Railroad Retirement Tax Act (RRTA) Tier 1 tax that is attributable to the 6.2-percent Social Security tax under Code Sec. 3201, on applicable wages is postponed until the period beginning on January 1, 2021, and ending on April 30, 2021; and
  • the deferred taxes must be withheld and paid from wages and compensation paid between January 1, 2021, and April 30, 2021.

The guidance states that it does not separately postpone the deposit obligation for employee Social Security tax. This is because the deposit obligation does not arise until the tax is withheld, so by postponing the time for withholding the employee Social Security, the deposit obligation is delayed by operation of the tax regulations.

Section 7508A Relief

In light of the coronavirus (COVID-19) disaster, President Trump issued a memorandum on August 8, 2020, directing the Treasury Secretary to use his Code Sec. 7508A authority to defer the withholding, deposit, and payment of the employee’s portion of OASDI tax on wages paid from September 1, 2020, through December 31, 2020. The deferral is available only for employees whose biweekly, pre-tax pay is less than $4,000, or a similar amount where a different pay period applies.

The Treasury Secretary determined that employers that are required to withhold and pay the employee share of OASDI tax or the RRTA tax are affected by the COVID-19 emergency for purposes of the relief described in the presidential memorandum.

Applicable Wages

The deferral applies to wages under Code Sec. 3121(a) or compensation under Code Sec. 3231(e) paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020, but only if the wage or compensation amount paid for a biweekly pay period is less than $4,000, or the equivalent threshold amount with respect to other pay periods.

The determination of applicable wages is made on a pay period-by-pay period basis. If the amount of wages or compensation payable to an employee for a pay period is less than the corresponding pay period threshold amount, then that amount is considered applicable wages for the pay period, and the relief provided in the guidance applies to those wages or that compensation paid to that employee for that pay period, irrespective of the amount of wages or compensation paid to the employee for other pay periods.

Paying Deferred Taxes

An affected employer must withhold and pay the total applicable taxes that it has deferred ratably from wages and compensation paid between January 1, 2021, and April 30, 2021. Interest, penalties, and additions to tax will begin to accrue on May 1, 2021, on any unpaid applicable taxes.

If necessary, the affected employer can make arrangements to otherwise collect the total applicable taxes from the employee.

NFC Prepares for Deferral

In related news, the National Finance Center (NFC), which serves over 160 agencies and provides payroll services to more than 600,000 federal employees, recently notified its customers that it was preparing to modify its Payroll/Personnel System to defer the deduction of the employee’s portion of the OASDI tax from federal employees’ wages, in response to the presidential deferral order.