Part of the President’s executive order in August was an employee portion payroll tax deferral from September 1 to Dec 31, 2020.   This deferral for those making less than $4,000 bi-weekly would amount to 6.2% of the amount they were paid. 

So what do I think about this deferral?  I wouldn’t touch it!

 

Employees – it is a DEFERRAL!  This means if you don’t have it held out now, you will pay it back later.  According to IRS guidance, you will have to pay it back in the four-month period starting Jan 1, 2021.  So, if you defer you will be receiving 6.2% more take-home pay right now, but starting in January you will have 6.2% less take-home pay then normal.  You see starting in January you are required to have withheld the normal 6.2% of social security tax, but you will also have to pay back the 6.2% that was deferred.  So, basically come January you will have 12.4% withheld from your check for social security plus the normal amount of medicare tax.

 

Employers: If the employee that had tax-deferred stops working for you, you will have to take the amount they had deferred out of your pocket and pay it back to the IRS no-later-than April 30, 2021, because starting May 1, 2021, according to the IRS employers will start paying penalty and interest on the amount not paid back!  

 

IMPORTANT TO NOTE:  The President is only allowed to defer.  Congress is the only one that can forgive.  I would not hold my breath that Congress will forgive it.  Sept 3rd the Wall Street Journal reported that Senate Democrats had started a process as a long shot, but never-the-less started attempting to overturn the President’s Executive Order.  As stated it is a long shot and not expected to work, but it does tend to support my thought that I do not think Congress will forgive it.

You can also watch a short video I produced talking about this same topic.  Watch HERE