Is the Temporary Deferral of Employee Payroll Tax Worth It?

President Trump issued a Presidential Memorandum on August 8, 2020, that directs the Treasury Secretary to use his authority to defer the withholding, deposit, and payment of employees’ portions of Social Security taxes from September 1 through December 31, 2020. The goal is to put more money in the pockets of workers during the COVID-19 pandemic emergency. The deferral applies to the 6.2% tax on wages or compensation paid for a bi-weekly pay period of less than $4,000 or the equivalent threshold amount for other pay periods. In other words, employees with annual wages up to $104,000 are generally eligible for the deferral.

Just a few days before the start of the deferral period, the IRS issued guidance explaining that the due date for withholding and paying Social Security taxes had been postponed; they are now due between January 1, 2021, and April 30, 2021. This means that Social Security taxes not withheld in the last 4 months of 2020 are to be similarly withheld from employees’ wages during the first 4 months of 2021, along with the required withholding on the 2021 wages. So, deferred withholding will increase employees’ take-home pay in September through December of this year, but their winter and early spring 2021 paychecks will be smaller because the Social Security tax withholding will be twice the usual amount. If you have any questions about the payroll tax deferral and how it would affect you, please contact us via phone at 616-957-2055 or contact us section of our website.

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