What is the Employee Social Security Deferral Memorandum?
Please Note: This information is subject to change, please refer to IRS information located here https://www.irs.gov/pub/irs-drop/n-20-65.pdf to stay up to date on changes.
Here is information about the program from Quickbooks:
“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).
UPDATE: The Consolidated Appropriations Act, 2021 was passed and extended the period for collecting deferred 2020 Social Security taxes. The period for collection is now January 1, 2021 through December 31, 2021 (instead of January 1, 2021 to April 30, 2021).
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 frequency||Wage limits to qualify (before tax)|
|Weekly||Less than $2000.00|
|Bi-weekly||Less than $4000.00|
|Semi-Monthly||Less than $4333.33|
|Monthly||Less 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 December 31, 2021. Otherwise, interest, penalties, and additions to tax will start accruing on Janurary 1, 2022.
How can I set this up in my payroll product?
See How to set up Employee Social Security Deferral in QuickBooks for detailed instructions for your payroll product.
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 December 31, 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 December 31, 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.”