On August 28, 2020, the U.S. Department of the Treasury issued guidance to address President Trump’s August 8^th memo authorizing the deferral of the withholding, deposit, and payment of Social Security payroll tax obligations for affected taxpayers. Employers are not required to defer the payment of Social Security taxes, the deferral is optional, but any deferred taxes must be repaid. The guidance and the memo do not address whether employees can elect to defer (or decline the deferral of) this federal payroll tax. 

Affected taxpayers are defined as employers that are:

• Required to withhold and pay their employees’ share of federal payroll taxes (OASDI/Social Security taxes and Medicare, collectively FICA); and
• Affected by the COVID-19 emergency.

The tax deferral is applicable to:

• Wages paid September 1, 2020 through December 31, 2020; and
• Only for employees who earn less than $4,000 during any biweekly pay period, before taxes, or the equivalent amount for other pay periods.

The $4,000 threshold determination is made on a pay period-by-pay period basis. For instance, if an employee’s pay for one pay period is less than $4,000, then that amount is considered applicable wages for that pay period, and the deferral applies to the wages paid to that employee for that pay period regardless of their wages from other pay periods.

This deferral is without penalty interest, additional amounts, or addition to the tax; however, payment of these taxes is delayed not forgiven, and the deferred taxes must be paid the following year. Congressional action may change this repayment requirement but for now, employers must withhold and pay the total applicable taxes, that were previously deferred in 2020 along with those that will be due for 2021, on the wages they pay between January 1, 2021 and April 30, 2021.

Failure to make these tax payments in 2021 will result in interest, penalties, and additions to tax will begin to accrue on May 1, 2021 on any unpaid amounts. If necessary, employers may plan to otherwise collect the total applicable taxes from the employee.