September 15, 2020 Payroll, Payroll & Tax Support

Recent Payroll Tax Deferral Order Offers More Uncertainty

Employees need to understand that bigger paychecks for the remainder of 2020 will result in smaller ones in 2021 when, at least for now, they will be required to pay back the deferred payroll taxes. A possible decision to forgive the deferred amounts is far from assured, leaving employers wondering what will truly be gained from opting in to offering the employee payroll tax deferral. One thing it looks sure to increase is the administrative burden for employers.

Since private employees are not required to opt-in even if their employers choose to offer the payroll tax deferral (exceptions: as of right now some military branches will be requiring eligible service members to opt-in and millions of federal employees appear to be in the same boat), immaculate records would need to be kept about which employees owe in 2021 and how much needs to be deducted from each pay in the first four months of 2021 to repay the full deferral amount. If those employees leave the company before the end of the payback period (January 1–April 30 2021), employers are responsible for either figuring out how to recoup that money from the departed employee or they are 100% on the hook to pay up (with possible penalties).

The uncertainty and unknown ways in which these scenarios might play out is leaving many employers leery of opting to offer the payroll tax deferral to employees. Some feel that payroll is already shouldering too many complex new rules from COVID-response legislation and payroll tax deferral tracking would just add fuel to the fire.

Things you Need to Know About the Payroll Tax Deferral, a.k.a. ‘Payroll Tax Holiday’:

Warning: this information is accurate as of September 16th, 2020–due to the rapidly evolving nature of the payroll tax deferral order, be sure to check these facts on any date after 9/16/2020. This is not intended as a full explanation of the payroll tax deferral order or as advice of any kind. The full description of the order can be viewed here.

  • The tax holiday refers to the allowance of employers to defer the withholding and deposit of the employees’ share of the SS tax (6.2%).


  • With the exception of eligible federal workers and specific military service members, employees working for companies that allow payroll tax deferral have the choice to opt-in.


  • Check with your payroll/HCM vendor about how they plan to support employers who allow employees to opt-in to the payroll tax deferral.


  • Offering the payroll tax deferral to employees will increase the administrative burden on payroll staff.


  • The applicable wage limit is 4,000 biweekly of Social Security wages evaluated on a pay period by pay period basis and is irrespective of annual earnings.


  • The period for the collection of 2020 deferred payroll taxes begins January 1, 2021 and runs through April 30, 2021.


  • Employees are obligated to repay the deferred amount ratably during the first quarter of 2021 (the employer shoulders the administrative work of accurately managing the repayment amounts), AND the employer is liable to repay the employee’s owed amounts in 2021 if the employer is not able to recoup the funds due to termination or other reason. *There is the possibility that employers could subtract the owed amount from a final paycheck–there is no guarantee that the final paycheck would be big enough to cover the full amount owed.


  • If the employer is not able to fully recoup the deferred amount from the employee via paycheck deductions or alternative collection method and pays the IRS bill on the employee’s behalf, that amount would be considered income and would need to be grossed up and added to the W-2.


  • There is a new draft of IRS Form 941 as a result of this order.


  • Many questions remain, including how the 2020 Form W-2 may be impacted.


  • Call the IRS Hotline with questions as the situation evolves to be sure you have the latest information: 800-829-1040.


Discuss the Details of Payroll Tax Deferrals With a Wise Payroll Professional Today

Call Wise with questions about administrative strategy and overall risk if your organization is considering offering the payroll tax deferral to employees: 800-654-4550. You can also contact our team here.

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