Considerations for Employers Regarding the Payroll Tax Deferral

Another pillar of the purported federal relief for employers due to the once-in-a-century pandemic was activated within President Trump’s executive action he signed on Aug. 8. Employers now have the option to withhold payroll taxes (Social Security and Medicare) from employees who make less than $4,000 per biweekly paycheck (around $104,000 per year). The deferral went into effect on Sept. 1 and is expected to last until the end of 2020. 

At first blush, this is attractive for many middle-class employees who have seen their overall household income decrease due to COVID-19. However, the key word in the executive action is “deferral.” As in, employers would effectively be kicking the can down the road by withholding twice as much from employees’ paychecks in the first quarter of 2021. 

The obvious drawback here is that many middle-class employees (who might have already been living paycheck-to-paycheck) will see smaller paychecks starting in January. There has been some discussion and movement in D.C. to forgive the payroll taxes not collected from employees in the last quarter of 2020, with the president signaling he would sign a bill that makes permanent payroll tax cuts. But, as of the date of this post’s publication, Congress has not acted. 

One potential drawback of the executive action for employers deferring the 6.2 percent payroll tax on employees’ paychecks is what to do about employees that leave before April 2021. That, essentially, would leave employers holding the bag for their former employees’ payroll taxes. If the taxes are not paid back by April 30, 2021, employers will potentially have to deal with penalties and late fees.

Many large employers and federal agencies have declined to take part in the payroll tax holiday. Enlisted service members were automatically opted into the deferral. One reason many employers have declined to take advantage of the holiday is due to payroll software and other systems not catching up to the option granted by the executive action. 

Another consideration arises for self-employed individuals: how will they take advantage of the payroll tax holiday? For those doing business under a trade name, they might have to set up a company and send themselves paychecks. 


Barring legislative action or further guidance, employers are left with much uncertainty regarding the pros and cons of the payroll tax holiday. There is, understandably, a lot of reticence on the part of employers to place a zero-interest loan on employees’ paychecks that will come due sooner rather than later. 

Complications and issues with payroll taxes are an exceedingly common issue for employers, and it is almost as common for the IRS to get involved when the agency believes an employer has not fulfilled its tax obligations. If this happens to you, we would be honored to represent you. Reach out to discuss your options with us soon.

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Weisberg Kainen Mark, PL

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