Learn about the presidential memorandum deferring employee Social Security payroll taxes and how this impacts ADP TotalSource clients and their employees.
We understand ADP TotalSource clients and their employees may have questions about the employee Social Security tax deferral. As a Certified Professional Employer Organization (CPEO), ADP TotalSource is solely responsible for federal employment tax liability and penalties. Because of the unique nature of this relationship, without additional PEO-specific guidance, ADP TotalSource will not be able to offer clients or their employees the ability to defer employee Social Security taxes at this time. We commit to monitoring for further changes or developments to the law and may reconsider this position.
Presidential Memorandum on Deferring
Employee Social Security Payroll Taxes
On August 8, 2020, President Trump signed a Memorandum directing the Treasury Secretary to defer the withholding, deposit, and payment of employee Social Security taxes for wages paid from September 1 through December 31, 2020 (“Presidential Memorandum”). The Presidential Memorandum is available here.
The deferral is available to employees with wages subject to Social Security taxation under $4,000 bi-weekly, or the equivalent amount with respect to other pay periods.
Employees pay a 6.2% Social Security tax on wages up to an annual limit, which is $137,700 in 2020. For example, an employee earning $137,700 or more would pay $8,537.40 in Social Security taxes in 2020. Employees also pay Medicare tax, but this is not affected by the Presidential Memorandum.
On August 28, 2020, the Treasury Department released Notice 2020-65 (“Treasury Notice”), available here, providing guidance on the operation of the employee Social Security tax deferral under the Presidential Memorandum.
Neither the Presidential Memorandum nor the Treasury Notice changes the underlying law which makes employers liable for employment taxes whether or not they withhold such taxes from employees. The Treasury Notice confirmed that employers remain liable to collect from employees and pay taxes deferred under the Presidential Memorandum.
For any employee Social Security taxes deferred from September 1 through December 31, 2020, the Treasury Notice requires the employer to withhold and pay those taxes ratably from wages paid between January 1 and April 30, 2021. Failure of an employer to withhold and pay such amounts by April 30 will result in accrual of interest, penalties and additions to tax beginning on May 1, 2021. The Treasury Notice allows, if necessary, an employer to “make arrangements to otherwise collect” the total taxes due from the employee but does not describe what form such arrangements might take.
The Treasury Notice does not obligate an employer to defer employee Social Security taxes. Absent further action from Congress, pursuant to the Treasury Notice, employers will remain liable for any deferred employee Social Security taxes, regardless of whether they are able to fully withhold such deferred taxes from employees from January 1, 2021 through April 30, 2021, or otherwise able to fully collect such deferred taxes from employees.
Employees may also prefer not to defer because they may be concerned with owing a large amount that would be withheld, in addition to the “normal” 2021 employee Social Security tax, beginning in January.
As a CPEO, ADP TotalSource is the employer of record for employment tax purposes and is solely responsible for federal employment tax liability and penalties. Because of the unique nature of the co-employment relationship, at this time ADP TotalSource is not offering deferral to ADP TotalSource clients. ADP is always monitoring the regulatory environment and if there are further changes in law or other developments that allow ADP TotalSource to offer the Social Security tax deferral in a prudent manner, ADP TotalSource may reconsider whether to offer the deferral.
If client employees are experiencing financial hardship, ADP TotalSource can help with available resources, such as LifeCare, the free Employee Assistance Program, which includes legal and financial services to support client employees with referrals to legal counsel, financial planners and financial counselors to assist with debt or credit management.
Frequently Asked Questions
As a CPEO, ADP TotalSource is the employer of record for employment tax purposes and is solely responsible for federal employment tax liability and penalties.
The Treasury Notice confirms that employers remain liable to withhold / collect from employees and pay all deferred taxes commencing January 1, 2021. This would include CPEOs such as ADP TotalSource.
Based on the guidance currently available, the deferral of withholding of Social Security taxes from eligible wages appears to be optional for employers. Current guidance does not specifically mandate that withholding of Social Security tax must stop for the period September 1 through December 31, 2020 and Secretary Mnuchin has publicly stated that employers cannot be forced to participate in the deferral program.
Yes, ADP is offering to non-TotalSource payroll clients the ability to offer employee Social Security deferrals to their employees.
As a CPEO and because of the unique nature of the co-employment relationship, ADP TotalSource is responsible for the federal employment tax liabilities of TotalSource clients. In contrast, ADP does not bear responsibility for federal tax liabilities for non-TotalSource clients.
ADP will implement employee Social Security tax deferrals for non-TotalSource payroll clients but will do so only if those clients elect to offer deferrals to their employees. ADP recognizes that non-TotalSource clients may decide not to offer deferrals to their employees.
Yes, these programs are mutually exclusive.
Because ADP TotalSource has elected not to participate at this time, ADP TotalSource client employees will not have an option to participate in the deferral program at this time. Client employees should consult their tax and financial advisors for advice. For TotalSource client employees experiencing financial hardship, ADP TotalSource can help with available resources, such as LifeCare, the free Employee Assistance Program, which includes legal and financial services to support client employees with referrals to legal counsel, financial planners and financial counselors to assist with debt or credit management.
ADP is always monitoring the regulatory environment and if there are further changes in law or other developments that allow ADP TotalSource to offer the Social Security tax deferral in a prudent manner, ADP TotalSource may reconsider whether to offer the deferral.
For more information, review the Eye on Washington on the Treasury Notice, available here.
