By Jacqueline Pitts, The Bottom Line
President Donald Trump issued an executive order in early August to defer the 6.2 percent tax employees pay toward Social Security that goes into effect Sept. 1 and end Dec. 31.
The IRS issued guidance for the order on Friday. Under the plan, employers may suspend the withholding of the 6.2% tax that comes out of an employee pay to go toward Social Security.
Workers that participate in the payroll tax deferral will see a temporary increase in their take-home pay in that period, but likely smaller paychecks in the start of 2021. Employees will have to pay back the deferred taxes by April 30 in addition to the 6.2 percent payroll tax that will restart in January.
The executive order would affect workers whose biweekly pay is below $4,000 on a pretax basis.
Under the IRS guidance, employers are responsible for withholding and paying any deferred taxes and the deferral only applies to wages paid during the period of Sept. 1, 2020 to Dec. 31, 2020.
Some are concerned about the order and IRS guidance as many questions remain including whether an employer must decide by Sept. 1 to defer withholding or if employers can start deferring at any point during the period, what happens if an employee no longer works for the employer once the deferral is over, and other concerns.
Read the full IRS guidance here.
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