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Social Security Tax Deferral…What You Need To Know

By Derek Ross, HR Consultant, East Coast Risk Management

Social Security Tax DeferralOn September 1, 2020, a new payroll tax memorandum came into effect from President Trump. Notice 2020-65 which refers to the need for employers to withhold employees Social Security tax for a four-month period from September 1 – December 31, 2020.

Additionally, on September 3, 2020, the IRS put out additional guidance for employers regarding the Social Security Tax Deferral as being OPTIONAL. Employers have the option and are not required to participate in the Social Security Tax Deferral program.

Ultimately, it is up to the employer to allow employees to defer their taxes… but, employers should be cautioned when allowing employees to defer their Social Security taxes for the remainder of 2020. The main reasoning is that if an employee elects the deferral and leaves your organization prior to January 2021, the employer may be liable to pay back all deferrals that were made on that employee’s behalf.

As an example, for an employee with $1,000 in wages per pay period, the deferral would result in an increase of $62 per pay period in take-home pay for the remainder of 2020.  Likewise, if the employee resigns or is terminated on December 31st, the employer again may be liable for the $62 per pay period.

So, let’s say there are 8 payrolls left in 2020. The employer would be on the hook to pay the terminated employees social security tax deferral in the approximated amount of nearly $500.00. Now, if 10 employees elected this and all quit or were fired before January 2021, the employer would then pay back almost $5,000.00 in the first quarter of 2021 for those employee’s taxes which were deferred in 2020.

See the trend?

Another reason to not adopt this social security tax deferral program is the potential administrative costs that it would take to track this information by the payroll administrators and the finance/accounting departments in your company.

As always, be sure you review all the risks and rewards associated with your Social Security Tax Deferral program.


If you are an employer that has questions on any issue relating to human resources, safety, or workers’ compensation, contact East Coast Risk Management by calling 724-864-8745 or emailing us at

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