IRS Issues Guidance for Deferral of Employee Social Security Tax

Businesses that were wondering how to handle the upcoming “payroll tax holiday” created by a Presidential Memorandum signed earlier this month received an answer late last week. The Internal Revenue Service published a notice that explains the upcoming Social Security tax withholding deferral.  

This guidance comes just in time, since the tax relief officially begins tomorrow.

How long is the Social Security tax withholding deferral period?

IRS Notice 2020-65 explains that certain wages paid from September 1, 2020, to December 31, 2020, may be deferred to the following period (January 1, 2021, through April 30, 2021). If employers do not pay the deferred tax by May 1, 2021, “interest, penalties, and additions to tax will begin to accrue.”

What wages are eligible for deferral?

The IRS says applicable wages and compensation paid during the deferral period are defined in section 3121(a) and section 3231(e)3. In the press release, they identify some limitations.

“The employee Social Security tax deferral may apply to payments of taxable wages to an employee that are less than $4,000 during a bi-weekly pay period, with each pay period considered separately,” the IRS writes. “No deferral is available for any payment to an employee of taxable wages of $4,000 or above for a bi-weekly pay period.”

For more information about the deferral of certain employee Social Security taxes, read Notice 2020-65.

Sources: IR-2020-195; Notice 2020-65

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