I’m sure most of you have heard about the new Social Security payroll tax deferral that went into effect on September 1st. On Aug. 28, the IRS issued Notice 2020-65, allowing employers to suspend withholding and paying to the IRS eligible employees’ Social Security payroll taxes, as part of COVID-19 relief.

The payroll tax “holiday,” or suspension period, runs from Sept. 1 through Dec. 31, 2020, and applies only to employees whose wages are less than $4,000 for a biweekly pay period, including salaried workers earning less than $104,000 per year.

Withholding of this tax is voluntary for every company meaning companies do not have to participate in activating this deferral. Companies that suspend collection of employees’ payroll tax would collect additional amounts from workers’ paychecks from Jan. 1 through April 30 next year to repay the tax obligation.

For the employee living paycheck to paycheck, understand that while bringing home a little extra in your paycheck can make a difference, these deferrals will have to be paid back. In other words, beginning January 1, 2021 your employer will be doubling these tax deferrals from your paycheck leaving you with much less take-home pay for four months.

If you work for an employer who will be withholding the taxes, please prepare yourself for January so you don’t find yourself in a financial struggle.

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