On August 8th, 2020, President Trump signed the Memorandum on Deferring Payroll Tax Obligations. We are now one month into the deferral period, and many questions are still circulating.
The Memorandum on Deferring Payroll Tax Obligations states that Social Security payroll taxes shall be deferred from September 1st, 2020, through December 31st, 2020. The deferred taxes will increase paychecks temporarily due to the 6.2 percent not being withheld during this time frame. However, the Memorandum only applies to specific taxpayers. To clarify, the Memorandum is not required and is only deferred by the employees; employers are still required to pay the employer’s share of Social Security taxes.
The deferral of taxes will only be applied to those earning less than $4,000 during a bi-weekly pay period if the employee chooses to accept the deferral. The only taxpayers required to withhold the 6.2 percent of Social Security taxes are military members and federal workers earning less than $8,666.66 per month.
Resistance to this deferral occurs when discussing the payback of these taxes. In the new year, employers that deferred the Social Security tax will need to withhold the Social Security tax again and withhold extra taxes to reimburse the deferred taxes. The increase in withholding will result in more than a 12 percent decrease in paychecks at the beginning of 2021. President Trump hopes to forgive the deferred taxes if reelected. However, a final decision has not been made, and no law has been created.
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