On August 28, the IRS issued Notice 2020-65, allowing employers to suspend withholding and paying to the IRS eligible employees’ Social Security payroll taxes, as part of COVID-19 relief.
The payroll tax "holiday," or suspension period, runs from September 1 through December 31, 2020 and applies only to employees whose wages are less than $4,000 for a biweekly pay period, including salaried workers earning less than $104,000 per year. Current guidance does not mandate that employers stop withholding Social Security tax during this period. This appears to be optional for employers and employees to participate. Companies that suspend collection of employees' payroll tax would be required to collect additional amounts from workers' paychecks from January 1 through April 30, 2021 to repay the tax obligation. Failure of an employer to withhold and pay such amounts by April 30, 2021 will result in accrual of interest, penalties and additions to tax beginning on May 1, 2021. Employees may not want to defer as they may be concerned about paying the additional amount of taxes in early 2021 due to the deferment.
Additional information can be found on the Society for Human Resource Management’s website and on ADP’s website.