Your Social Security Tax Deferral and Repayment Questions Answered
Like many employers, you probably have had lots of questions regarding your executive order regarding the payroll taxes deferral. As you’re now in the repayment and collection phase of your employee’s Social Security tax deferral, there’s a good chance you have additional questions.
If you’ve missed the latest news about the delay of employees’ Social Security taxes, we’ve provided you with the latest information. For starters, the deadline for tax deferral is fast approaching. Also (the aspect you’ve been anticipating long) employers are accountable to collect and pay taxes that have been delayed.
Employer Social Security tax deferral: FAQs
In August of 2020 the then-President Trump released four executive directives, the first of which addressed an extension of the Social Security payroll tax deferral. Then, on December 27, 2020 it was announced that the Consolidated Appropriations Act extended the deadline for the repayment of tax deferrals on payroll.
What’s the deal?
The executive order allowed eligible employees to temporarily delay the employer portion that is Social Security tax in 2020. Because it was an deferral, not cutting, employees pay the taxes and then pay them back in 2021. The deferral functioned as a free loan without penalty. Employees who took advantage the deferral received an increase in their wages in 2020, but less in 2021.
This is how it worked: Employees’ wages are subject to income and payroll tax. So taxes on payroll include Social Security and Medicare taxes that collectively are referred to in the form of FICA tax. Deferral of payroll tax is is only applies on Social Security taxes.
The amount paid by employees to Social Security tax is 6.2 percent
Employers pay a match of 6.2 percent to cover part of the employers’ Social Security tax. Employers are responsible for withholding your employee’s portion of their wages and then remitting it to the IRS.
With during the Social Security deferral, certain employees (i.e. employees who earned less than $4,000 biweekly or $104,000 per year) may be able to temporarily stop paying the portion of their salary to the employee. If you were one of them, you could hold off withholding payments and then remitting payments towards the IRS in the deferral timeframe in 2020.