What Farm Employers Should Know about the Payroll Tax Deferral

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On August 8, 2020 President Trump signed an executive order allowing the deferral of the employee portion of social security and Medicare taxes effective September 1 to December 31, 2020. In order to qualify, wages paid to an employee in a bi-weekly period must be under $4,000. This means that employees would get a slightly bigger paycheck, and the employer is not required to submit those taxes for this period. However, the deferred taxes must be withheld from the employee’s pay and paid by the employer between January 1 and April 30, 2021. If the employer fails to submit payment, there will be penalties and interest due on these amounts, beginning May 1, 2021.

If participating in this tax deferral, which does not appear to be mandatory, farm employers need to be sure their employees understand that while taxes will not be withheld now, the employee will be paying double in the early part of the year to make up for the deferral, as well as paying those taxes as they normally would in 2021.

The other issue that could arise for the employer is if the employee leaves the job in 2021 before the remainder of the FICA taxes have been withheld from their last paycheck. The employer could be responsible for the remaining amount, therefore, check with your tax accountant before making the decision to participate in this deferral. If you choose not to participate, make sure you communicate this with your employees, and they understand why you are not participating. Explain to them that while they will receive a bump in pay now, their paycheck will be smaller in 2021 as they recover those deferred taxes, plus the amount they owe from their pay in 2021.