A Staffing Software Developer’s Thoughts on the Optional Deferral of Employee Social Security Tax

Confused People Searching For Information And Solution, Flat Vec

I’ve been writing payroll software for the staffing industry since 1983. Writing software to meet the ever changing legal requirements for the states, territories and provinces of the United States, Canada and Mexico (not to mention countless local taxing authorities) has always presented significant challenges. But in 37 years, I’ve never seen anything close to what we’ve seen in 2020.

The most recent challenge was to provide clients with a method to afford deferred Social Security tax withholdings to their employees. The need arose from President Trump’s Executive Order of August 8th, 2020. That deferral goes into effect immediately, i.e. September 1st.

What has made this so challenging is that there is no clear destination for the road we are heading down. To stop withholding employee’s Social Security tax is easy, but the Executive Order was for a “deferral” of taxes. That means the taxes are still owed. There may be a hope of forgiveness of the taxes in the future, but you cannot write code for such a hope. Nor can you write code for the repayment of the deferred taxes until the rules are set down for how and by whom the deferred taxes are ultimately to be repaid.

We have been writing blind while planning to provide a method to enable tax forgiveness or repayment together with the required reporting once the next turn in the road is determined. Our recommendation to our clients is and has been to seek the advice of their tax professionals.

On Friday evening, August 25th, 2020 the IRS released a 3 page advisory regarding the President’s order. From my read it does not provide instruction for any reporting of deferred taxes, nor does it consider the taxes being forgiven. But it does give some guidance on the repayment of deferred taxes and the onus is on the employer (as pretty much everyone expected it would be.)

Here is the gist of it with the “Affected Taxpayer” being the employer:

An Affected Taxpayer must withhold and pay the total Applicable Taxes that the Affected Taxpayer deferred under this notice ratably from wages and compensation paid between January 1, 2021 and April 30, 2021 or interest, penalties, and additions to tax will begin to accrue on May 1, 2021, with respect to any unpaid Applicable Taxes. If necessary, the Affected Taxpayer may make arrangements to otherwise collect the total Applicable Taxes from the employee. (Quote from IRS August 25, 2020)

Again, no reporting instructions; no repayment plans for the employee. Just plan on having any deferred taxes repaid by April 30th or you, as the employer (i.e. Affected Taxpayer), will pay the price.

At this point it’s tempting to make a political statement, but I’ll bite my tongue. I will say that it is hard to be a payroll software provider in the best of times. It is incredibly difficult in times such as these.

If you opt to allow employees to defer social security taxes and you intend to recapture those deferrals from employees still working for you in the new year, we can give you assistance in methods to retrieve the deferrals over time or as quickly as possible.

If the taxes are somehow forgiven, and perhaps required to be declared as taxable income for the employee, we can help you with that.

If you opt not to defer the tax withholdings and the government ends up forgiving the deferred taxes? Well, there are still many more questions than answers.

Rest assured, we will remain as flexible as we can and try to do our part as a software provider to get us through these most unusual and challenging times.

Stay safe out there!

Brian J. McMahon, President

Bridgeware Systems Incorporated