Payback Is Hell
Remember this saying when considering whether or not to follow the Executive Order of the deferral of employee Social Security Tax. The deferral may sound good to you as an employer and to employees now, but payback could really be hellish. In other words, unless it’s going to mean the difference between life and death for your employees, you might want to think long and hard before jumping in.
If you were to participate in deferring the withholding of Social Security tax, that would result in a very slight increase in your employees’ take-home pay for a couple of months. It would also mean costs associated with implementing such a change, to decrease withholdings for four months. The deferral begins September 1, 2020 and goes through December 31, 2020. Afterwards, you would then have costs associated with increasing the withholdings back to more than the ordinary levels until the appropriate amount is recovered from the employee.
The good news is that this executive order is not mandatory. Likewise, your employees cannot force you to do it. However, if you choose, you can offer the deferral to employees on a voluntary basis. That is up to your discretion.
Now, for the news that makes this even trickier for employers. What happens if you do defer the taxes and your employee leaves, dies or you terminate them? Who’s responsible for making sure the IRS gets those deferred taxes? You are! And all deferred taxes would have to be paid back between January1, 2021 and April 30, 2021. Beginning May 1, 2021, IRS sanctions will start accruing on any unpaid portion.
If you and your employees can ride this one out no one will have to be concerned about payback! It might also be like adding that one additional straw to the camel’s back that ended up breaking it. Stay safe. Stay strong. We will get through this.