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What is the Employee Social Security Deferral Memorandum?

Find answers to basic questions about the recent Employee Social Security Deferral Memorandum.

Note: Regulations and guidance on the Presidential Memorandum allowing for the deferral of employee Social Security are subject to change. Please refer to IRS information located here: https://www.irs.gov/pub/irs-drop/n-20-65.pdf

Update: With the passage of the Consolidated Appropriations Act, 2021, the collection and repayment of deferred amounts is extended to December 31, 2021.

What is the deferral memorandum?

On August 8, 2020, a Presidential Memorandum was issued to provide employers the option to temporarily defer their qualified employee's Social Security tax.

As an employer, you can choose to offer certain employees a deferral of their 6.2% Social Security tax. This is normally taken out of each paycheck, but you can opt to keep it in your employee’s pay from September 1, 2020, to December 31, 2020. It’s the employer’s choice to offer their employees the deferral or not.

This means that certain employee's net pay could increase by 6.2% through December 31, 2020. However, those same employees’ wages could decrease by around 6.2% from January 1, 2021 through April 30, 2021. This is because you'll need to withhold and repay the taxes deferred (not including other taxes and deductions that may apply).

Which employees are eligible for the deferral?

Only employees whose compensation payable during any bi-weekly pay period is less than $4,000, calculated on a pre-tax basis, are eligible.

Per the IRS, eligible wage amounts are determined per pay period based on the employee's pay frequency:

Pay frequencyWage limits to qualify (before tax)
WeeklyLess than $2000.00
Bi-weeklyLess than $4000.00
Semi-MonthlyLess than $4333.33
MonthlyLess than $8667.67

What do I have to do?

Employers may choose to offer the deferral to their employees or not. This is a deferral only, so any amounts not withheld from September 1, 2020 through December 31, 2020 need to be repaid by April 30, 2021. Employers are obligated to remit the total applicable taxes deferred regardless of whether they are able to withhold those amounts from their employees’ paychecks from January 1, 2021 through April 30, 2021. Otherwise, interest, penalties, and additions to tax will start accruing on May 1, 2021.

How can I set this up in my payroll product?

See How to set up Employee Social Security Deferral in QuickBooks and How to collect back and pay the Employee Social Security Deferral in QuickBooks for detailed instructions for your payroll product.

More Questions

Am I required to offer this to my employees?

No, this is voluntary and you are not required to offer this to your employees.

If I elect to opt-in and offer the deferment to my employees, are they required to defer?

No, this is voluntary and they are not required to defer, if you offer it. Employees can opt-in or out any time during the deferral period. We suggest that you obtain some acknowledgement of agreement from your employee prior to beginning the deferral.

Is base salary the only consideration for deferral of social security?

No. Earnings include, but are not limited to, base salary, bonus and generally any other taxable earnings/income paid to the employee.

Are other employee taxes also part of the deferral?

No, only the employee portion of Social Security can be deferred.

If I opt-in and offer deferral for my employees, how does the money get paid back by April, 30, 2021?

As the employer you are ultimately responsible for the repayment, not the employee. You will need to obtain the amount deferred from your employees and remit directly to the IRS on or before April 30, 2021.

How will I be able to obtain these funds from the employee after the deferral period ends?

See the “How can I set this up in my payroll product?” section above and refer to the information provided for your Intuit payroll product.

How are taxes affected?

The amounts that have been deferred will be included in Box 13b as well as reported on Line 24 of the 941 for Quarter 3 and 4.

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