Employee Deferral of FICA Obligations
WASHINGTON — On August 8, 2020, The Department of Treasury and Internal Revenue Service issued the Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster. Since that date, Outstaffing has been seeking clarification concerning the impact on our clients and employees of this Executive Order. As of this date, guidance regarding the implementation is still unclear.
Outstaffing’s position, given the uncertain impact on both clients and employees, is that as a company WE WILL NOT BE ELECTING TO PARTICIPATE IN THIS PROGRAM. However, if you, as our client, feel differently and want to discuss this for your employees, please contact us immediately.
Outstaffing, in consultation with Paylocity, procured the sample letter below that more clearly explains our position. It is in the form of a sample template that you may use to notify your employees if you so wish.
Valued Employees,
On August 8, 2020, President Trump issued a Presidential memorandum allowing deferment of the employee’s portion of Social Security Tax withheld from their paychecks.
Employers are obligated to pay social security tax at a rate of 12.4% which includes an employee and employee split of 6.2% each. Employers withhold the Employee share whenever wages are paid. Any amounts the Employer is unable to collect form the employee, must be paid by the Employer by the due date regardless of whether the amount was collected from the employee.
Due to the liability of the Employer, the option to offer the deferment lies first with us as your employer. The deferral is not a tax credit, but rather a delay or temporary “tax holiday” in imposing the tax on the employee’s paycheck withholding until 2021. The deferral is limited to wages paid under $4000 per bi-weekly pay period or equivalent for any employee who has not reached the Social Security wage base in 2020 of $137,700.00. Whatever taxes are not withheld for the remainder of 2020, will begin to be collected starting in January 2021.
At this time our organization has made the decision to not utilize this tax deferment. We want to share with you, our employees the reasons for this decision.
Initially eligible employees would in the short-term see decrease in tax withholding and an increase in the amount of wages in their net take home pay; however, employees would than experience an increase in their tax withholdings and decrease in their net take home pay January – April 2021, when the deferred taxes would have to begin to be withheld to repay the amount deferred. From January 1 through April 30, 2021 you would have your normal social security tax amount withheld in addition to the amount you deferred between September 1, 2020 through December 31, 2020 which would result in a smaller paychecks for the first four month of 2021.
As your employer we would be responsible to begin collecting your deferred social security taxes beginning January 1, 2021 through April 30, 2021. Additionally, if we were unable to collect your deferred taxes through the regular payroll process, we would be liable to pay the deferred taxes and that uncollected amount of deferred taxes would result in being taxable income for you as the employee.
After much discussion and consideration, we feel setting up the deferral could pose a delayed financial burden on our employees and an administrative burden to our organization.
Should you have any concerns or questions about this decision please reach out to Phil Mauger at Outstaffing. 888-OUTSTAFF or 888-688-7823
Thank you,
As this is a developing situation, our position may change. We will keep you advised.