How to handle the deferment
The Payroll Tax Holiday that was enacted through President Trump's Executive Order is a deferment of Social Security Tax for employees from September 1, 2020, through December 31, 2020. The deferment has to be repaid in the first quarter of 2021.
To put this in laymen's terms: employees will get a pay increase of 6.2% (their portion of the Social Security Tax) for the last quarter of this year, but they have to pay that back in the first quarter of next year essentially doubling their first quarter's Social Security Tax at 12.4%.
However, the employer still has to pay their portion of the Social Security Tax for both quarters at a steady 6.2%. For more information click this link: Tax Holiday
ParishSoft cannot give tax or accounting advice as per our policy
Employers (you) have the option to opt-out of the Payroll Tax Holiday.
- If you would like to opt-out, you do not have to make any changes to the program.
- We recommend that you consult an accountant or a payroll professional to make the best decision for your organization.
How to handle the deferment through the program
If you choose to defer, to turn off the employee portion of the Social Security Tax during the payroll process:
- Select the Calculation Options button in Step 4, Calculate.
- Remove the checkmark from Deduction: Social Security Withheld and Submit.
IMPORTANT! The calculations option above affects all employees in the payroll process. If you have some employees who do not participate, you will need to run a separate payroll process. One designated for the Tax Holiday with the calculation turned off and one with the calculation turned on.
How to know if the Social Security Tax has been deferred
The program does not have a way to track the amounts that have been deferred, so you will have to keep track of the amounts separately. You can run the Detailed Deductions Report for the payrolls that are affected. This report will give a breakdown of both the employer and employee amounts that were calculated.
Normally, both the employer and the employee have the same 6.2% for Social Security Tax. The deferred amount will match the employer amount. During the first quarter of 2021, it is the employer's responsibility to collect and pay the employee amounts that were deferred. Failure to remit all deferred amounts can result in penalties and interest for failure to deposit the full deferred amounts.
We do not know if the IRS will provide an updated 941 for the fourth quarter of 2020 in light of the Tax Holiday. If they do, we will provide that in the program for you if/when that happens.
Processing for 2021
Currently, we are exploring options in the program to help with making deferred payments in 2021.