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Payroll Tax Deferral Goes Into Effect Today; Employers Responsible for Collecting Deferred Funds

  • Under an executive order from President Donald Trump, employers may defer a 6.2 percent employee payroll tax between Sept. 1 and Dec. 31
  • IRS guidance says employers are responsible for collecting the deferred tax between Jan. 1 and April 30 of 2021
  • Deferral would mean a short-term boost in employees’ take-home pay followed by smaller paychecks early next year

Today marks the start of a payroll tax deferral issued last month under an executive order from Donald Trump. The deferral allows employers to temporarily withhold employee contributions toward Social Security, providing a year-end boost in take-home pay for employees, but it remains to be seen whether employers will embrace this setup.

A 12.4 percent levy, split between employees and their employer, goes to fund Social Security. Under Trump’s executive order, employers may defer the 6.2 percent share among employees whose pretax biweekly income is below $4,000. This deferral would be in place between Sept. 1 and Dec. 31, but employers are required to repay the deferred taxes between Jan. 1 and April 30.

Since employers may make arrangements to collect the deferred taxes from employees, workers who participate in the deferral would likely see a reduction in their pay early next year as employers collect both the deferred tax and the normal payroll tax for that period. Employers are urged to communicate with their employees about their options and to make them aware that the tax reduction is only a deferral and will need to be repaid. Employers may also opt not to defer the payroll tax due to the paperwork and other complications involved in the process.

Employers have raised concerns about the limited time they had to review IRS guidance before the payroll tax deferral period began, and Trump has been criticized for promising that the deferral will not need to repaid if he is re-elected (an act of Congress would be needed to forgive the deferred taxes). The deferral has also raised concerns that it will lead to a more rapid depletion of Social Security funds.


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