Late this summer, a Presidential Memorandum gave employers the ability to postpone Social Security tax payments between September 1 through December 31, 2020. Before you get too excited with your larger paycheck, you need to remember a few things:
- The action is not like a stimulus check or the forgivable Payroll Protection Program. The deferred tax (along with the current tax) must be repaid between January 1 through April 30, 2021. Because your Social Security tax rate is 6.2%, you will pay 12.4% of your gross pay for the first third of the year.
- Although the White House wants to forgive the four-month tax holiday, that action requires unlikely Congressional approval.
- Your employer chooses whether or not to defer the tax. You cannot opt out.
- You are exempt from the deferral if you earn more than $4,000 biweekly.
- You won’t see the term “Social Security tax” on your pay stub. Officially, it’s referred to as “FICA.”
- If you are a small business owner and use a payroll processing service, check their default practices, and make any necessary adjustments.
- Medicare and income tax continue to be deducted from your check.
If your employer has provided you with the Social Security tax deferral, consider saving the money so you can repay it in the spring. You can determine the amount by comparing your pay stubs of August and September. Even if you decide to use the additional income now, a little planning can avoid unexpected financial pain in the future.