Deferring Employee Social Security Payroll Taxes – ADP TotalSource

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.

Background

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.

Implications for Employers and Employees

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.

Is Deferral Optional for Both Employers and Employees?

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.

Deferral Will Not Be Available for ADP TotalSource Clients at This Time

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.