What is the Social Security Withholding Tax Deferral and What Does It Mean to Me?
Most employers are required to withhold 6.2% in Social Security tax from their employees’ pay and submit it plus a matching amount to the government. But in August, an executive order was signed allowing employers to temporarily suspend withholding the Social Security for September through December 2020. The suspension only applies to employees whose bi-weekly pay is under $4,000.
The suspension wasn’t a payroll tax reduction, it was a deferral. Any employer who opted to implement the suspension had to collect the suspended tax from their employees in January through April of 2021 and remit the deferred taxes to the government by April 30, 2021.
Many employers decided not to implement the tax suspension amid concerns over collecting deferred taxes from employees who might no longer be on the payroll in 2021 and other logistical issues. But if your employer did opt to suspend collecting Social Security withholding taxes, here are some things you should know.
The suspended tax will be withheld from your paycheck evenly from the beginning of the year through the end of April. That withholding is in addition to the normal Social Security tax withholding from your paycheck. So not only will the 6.2% withholding begin again on your current wages, a similar amount will be withheld for the suspended taxes. That could means a cut in your net pay of 12.4% or so. Ouch!
Consider setting funds away in savings now that you can use into after the first of the year to make up for that dip in your net paycheck.
If you leave your job before next April, be prepared to see all the deferred payroll taxes deducted from your final paycheck.
If you get a bonus that increases your bi-weekly gross pay to over $4,000, that paycheck will not be eligible for the payroll tax deferral and your employer will take Social Security taxes out of the wages and bonus in that particular paycheck.
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The information in this article for general educational purposes only and not intended to provide specific advice or recommendations. Please discuss your particular circumstances with an appropriate professional before taking action.