What Employees Need to Know about the Social Security Payroll Tax Deferral

social security tax printed on paper

If you are planning to offer your employees the option to defer their payroll taxes, here are six points to aid them in their decision.

Recent Treasury guidance permitting employers to defer employee Social Security taxes has been widely reported in the media. Many employees are now asking their employers about payroll tax deferral, such as whether the employer plans to offer the option and how it might affect them. Share these considerations with employees:

Your employer may not offer the payroll tax deferral option.

  • It's the employer's choice whether to offer the deferral.
  • If your employer offers it, they may ask you whether you want to take the deferral.

It is only a delay.

Any amounts that you don't pay from September through December will be withheld from your pay starting in January.

Your net pay could increase by 6.2% through December.

  • Social Security tax is 6.2% of your wages (up to $137,700 for 2020).
  • But in January, your wages could decrease by about 6.2% to repay the payroll tax deferral (in addition to the other normal taxes and deductions that will apply). It won't be exactly 6.2% in most cases.

Employers that offer the deferral will generally withhold the taxes deferred in even amounts from January 1 – April 30, 2021.

But, if you change jobs, your employer may withhold the full amount deferred from your last check. If so, this could take up almost half of your last paycheck (in addition to other taxes and deductions).

You may not qualify for payroll tax deferral for every paycheck.

  • It only applies if the amount you earn is less than $4,000 bi-weekly (or equivalent amounts for other pay schedules).
  • If you receive other payments such as commissions or bonus in the same pay period, the combined total may result in no deferral.

There's no phase-out for those with earnings close to the $4,000 limit.

Someone earning $3,999 in a biweekly pay period would qualify for deferral, but someone earning $4,000 would not.

Supporting information

To learn about the Presidential Memorandum Deferring Employee Social Security Payroll Taxes, information employers should know before deciding whether to defer, and what updates ADP is making, visit: Deferring Employee Social Security Payroll Taxes

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