Deferring Payroll Tax Obligations

The payroll tax suspension is now effective. The deferring payroll tax means the obligations to withhold Social Security tax which has a fixed 6.2% rate is now suspended.

The White House issued the Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster. This means the employers aren’t obligated to withhold a 6.2% Social Security tax from employee’s income. You can think of this as a payroll tax holiday as it will run from September 1st, 2024 to the end of the year.

Income Limits on Payroll Tax Deferral

However, this doesn’t apply to all employees though. Same as the previous steps taken against the coronavirus pandemic, there is an income limit.

If your income is more than $104,000 (before tax), Social Security tax will be withheld from your income. So, the payroll tax suspension with Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster doesn’t apply to you—at least for now.

Those with earnings above $104,000 can opt to suspend Social Security tax from their income. If you—an employee—choose to suspend Social Security tax and your company allows it, your employer will collect Social Security tax from January 1st to April 30, 2024.

Workers With Earnings Over $104,000

Although you may not be eligible to get rid of Social Security tax from your paycheck altogether, you have the option to suspend it for four months.

Considering that the additional Social Security tax will be withheld in a total of 5 months and the suspension is for three months, it will bring some financial advantages. You can opt to invest your income with the 6.2% boost and pay off the Social Security tax that wasn’t withheld from your income gradually between January 1st and April 30 of the next year.

This brings a question regards to employees who leave by the end of the year. If you’re an employer and wondering what will happen if you stop collecting Social Security tax from an employee’s income, it’s simple. The employer will be responsible to pay the employee’s share of Social Security taxes. There isn’t much that changes with this since the due date is just extended to the following year.

In addition due date, the employer can make repayment arrangements with the employee and be able to deduct the amount owed from the final paycheck of the employee. In conclusion, the employer won’t pay the balance owed and this is clearly protected on the IRS guidance on payroll tax deferral.