The Question Remains: Should Employers Withhold Employee’s Social Security Taxes Starting September 1?

Earlier this month, the President of the United States issued an executive memorandum directing the Secretary of Treasury to defer the withholding, deposit and payment of the social security taxes (i.e. the 6.2% employment tax withholding from employees’ paychecks) from September 1, 2020 through December 31, 2020 for employees who generally made less than $104,000 on an annual basis. The stated purpose of this deferral was to “put money directly in the pockets of American workers and generate additional incentives for work and employment, right when the money is needed most.”
 
The memorandum further directed the Secretary to provide additional guidance on the implementation of this deferral. However, with September 1 quickly approaching, the Secretary and the Internal Revenue Service have yet to issue any guidance regarding this deferral. This has left employers in a tenuous position of determining whether to implement this memorandum and not collect the social security taxes from qualifying employees’ paychecks. This is highlighted by the fact that such taxes are just deferred—and not forgiven—and therefore such amounts would need to be paid back to the federal government (though the President has indicated he wants such amounts to be forgiven).  
 
There are many unanswered legal and practical questions regarding this deferral that fall directly on employers. For example, what exposure or responsibility does an employer have if it does not collect the social security taxes from an employee pursuant to the memorandum, but that employee is no longer employed after December 31, 2020? Does the employer become liable for the social security taxes that were not withheld from the employee’s paychecks in this limited period of deferral? Because of questions like these that remain unanswered, unless and until such guidance is provided, employers very well may determine to continue to withhold and remit the applicable taxes. 
 
Feel free to contact Matt Ehinger or any member of Ice Miller’s Tax Group to discuss this tax deferral or any of the other tax matters related to COVID-19.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. It speaks only to guidance available as of August 10, 2020. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.