[US] Deferral of Employee FICA Tax

On August 8, 2020 President Trump signed an Executive Order Deferring Employee FICA Taxes from September 1, 2020 to December 31, 2020. On August 28, 2020 The Internal Revenue Service (IRS) issued Notice 20-65 with further clarification on the Executive Order, along with a revised version of Form 941.

December 27, 2020 update: The repayment deadline for the employee tax deferral has been extended to the end of December 2021, with the signing of Bill HR 133.

 

Is Deferral Optional for Both Employers and Employees?

What does this mean for Employers?

What does this mean for Employees?

Threshold Amount per pay period

Calculation Example

How can I defer the employee portion of Social Security taxes within Wave? 

How is the Deferral Reported?

What about Contractors?

What if I am also receiving a Paycheck Protection Program (PPP) loan?

Resources

Is Deferral Optional for Both Employers and Employees?

The deferral of withholding of Social Security taxes from eligible wages is optional for employers. Secretary Mnuchin has publicly stated that employers cannot be forced to participate in the deferral program.

What does this mean for Employers?

Employers can stop withholding and depositing the employee portion of Social Security Tax starting with pay dates on or after September 1, 2020 and ending December 31, 2020. This can be done up to each employee's applicable wage base, based on the employee's pay frequency. Starting January 1, 2021, employers will be required to start withholding the deferred tax amount and remit such taxes to the IRS based upon their payment frequency. The total deferral amount needs to be remitted on or before December 31, 2021. 

What does this mean for Employees?

Starting with pay dates on or after September 1, 2020 the 6.2% employee portion of social Security tax can be deferred for employees making up to $4,000 in applicable wages on a bi-weekly frequency (see below for thresholds for other frequencies), not to exceed an annual pay of $104,000. The repayment of the referral is due December 31, 2021.

Threshold Amount per pay period

  • Weekly: $2,000
  • Bi-weekly: $4,000 
  • Semi-monthly: $4,333.33
  • Monthly: $8,666.66

Calculation Example

Payroll Frequency: Bi-weekly
Number of Pay dates during deferral period: 9 (Start Sep 4th and every 2 weeks thereafter).
Gross Pay: $2,500 bi-weekly ($65,000 annually) 
Applicable Wages: 100% of gross wages

In this scenario the employee is able to defer a total of $1,395.00 or $155.00 per pay period.

How can I defer the employee portion of Social Security taxes within Wave? 

If you choose to offer this deferral to your employee(s), you will be able to opt them in on an individual basis. 

To do so, go to the Payroll menu on the left hand side:

  1. Click Employees
  2. Click the name of the employee you would like to opt in.
  3. Click Tax Details.
  4. Under the Tax Deferrals section within the Tax Details, check the box that says COVID-19 Employee Social Security tax deferral.
  5. Click Save.

The next time you run a payroll, you will see the Employee Social Security Tax Deferral reported in your Payroll Summary, as well as on the employee's pay statement. 

Additionally, you can visit your COVID-19 Hub to view the number of employees that have been opted-in and the total deferred amount so far. 

How is the Deferral Reported?

The IRS issued a new Form 941, Employer’s Quarterly Federal Tax Return for 2020 Quarter 3 and onward. On the new form the deferred amount will be included in the amount reported on Line 13b (deferred amount of social security tax) and also reported on Line 24 (deferred amount of the employee share of social security tax included on Line 13(b)). For more information on Form 941 updates, please see: 

As the deferred amounts are not to be reported in Box 4 on the W-2, once the deferred amount is repaid, a Form W-2C will have to be submitted with an updated Box 4. Please see IRS guidance: 

What about Contractors?

Self-employed individuals are not eligible for this deferral however they are permitted to defer half of their applicable social security taxes up to the annual social security wage base between March 27, 2020 and December 31, 2020, see section 2302(b)(1) of the CARES Act.

What if I am also receiving a Paycheck Protection Program (PPP) loan?

Since this is an Employee Deferral, having received a PPP Loan does not make you ineligible.

Resources