Recently, the President issued a memorandum directing the Secretary of the Treasury to use his authority to defer the withholding, deposit, and payment of certain payroll tax obligations. Accordingly, the Secretary has determined that employers that are required to withhold and pay the employee share of social security tax or the railroad retirement tax equivalent are affected by the COVID-19 emergency for purposes of the relief described in the memorandum.
Therefore, the due date for the withholding and payment of the social security tax or the railroad retirement tax equivalent on applicable wages is postponed until the period beginning on January 1, 2021 and ending on April 30, 2021.
Applicable wages means wages or compensation paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020, but only if the amount of such wages or compensation paid for a bi-weekly pay period is less than the threshold amount of $4,000, or the equivalent threshold amount with respect to other pay periods.
The determination of applicable wages is made on a pay period-by-pay period basis. If the amount of wages or compensation payable to an employee for a pay period is less than the corresponding pay period threshold amount, then that amount is considered applicable wages for the pay period, and the relief applies to those wages or that compensation paid to that employee for that pay period, irrespective of the amount of wages or compensation paid to the employee for other pay periods.
Payment of Deferred Applicable Taxes
An employer must ratably withhold and pay the total applicable taxes that the employer deferred under the Memorandum from wages and compensation paid between January 1, 2021 and April 30, 2021. Interest, penalties, and additions to tax will begin to accrue on May 1, 2021, with respect to any unpaid taxes. If necessary, the employer may make arrangements to otherwise collect the total taxes from the employee.
As always, contact the Crosslin tax team at (615) 320-5500 if you have any questions on the deferral of social security tax or the railroad retirement tax equivalents.