On August 28, 2020, the Treasury Department and Internal Revenue Service (IRS) issued guidance on the Memorandum on Deferring Payroll Tax Obligations issued by President Donald Trump on August 8. In the Memorandum, the President directed the Secretary of the Treasury to defer the withholding and deposit of the employee portion of Social Security Tax, which is 6.2%, for the period of September 1 through December 31, 2020. Wages that are eligible for the deferral are employee’s wages that are less than $4,000 for a two-week period or equivalent amount for a different pay period.
It appears that there is no requirement for employers to defer withholding and depositing of the employee’s Social Security and can elect to do so at their discretion. Choosing to defer withholding of Social Security from employee checks provides additional take home pay to employees now but will result in reduced take home after the defer period when the deferred tax must be withheld and paid.
For the period of January 1 to April 30, 2021, employers that deferred the Social Security withholding for their employees will need to collect and pay in the deferred amount. This would most likely be accomplished by withholding twice the amount of Social Security tax from employee checks January through April (12.4%). If the tax is not withheld and deposited before May 1, 2021, penalty and interest will begin to accrue.
Ultimately, it will be the employer’s responsibility to withhold and deposit any deferred employee Social Security withholding. This means employers could be on the hook for the employee’s portion if the employee is no longer working for them after January 1. The guidance issued by the IRS does not address this specifically, but it states that the employer may make other arrangements to collect the tax from the employee if not through payroll withholding.
Since it is common for agricultural employers to have seasonal employees, it is imperative that farmers understand what this means for their operation and their employees. Please contact your AgCountry Tax or Farm Accounting Specialist with any questions or to discuss your specific situation.