Avoiding the September – December 2020 Federal Payroll Tax Holiday Will Save You Time, Money and Flak in Business and at Work

Contrary to urban legend, I don’t know all 500,000 people in our geographic area. However, my network of HR leaders, CFOs, CEOs, etc. anecdotally have all made the unanimous decision not to use the Federal September to December 2020 Social Security Payroll Tax Holiday. A Holiday implies that the Social Security payroll taxes for this time period will be forgiven, and employers will not have to repay the September – December 2020 deferral. However, at this writing, there’s no concrete guarantee of Federal Social Security payroll tax forgiveness.

Why? Here are the time- and morale-saving reasons:

• Employers that suspend collection of eligible employees’ Social Security payroll taxes during the four-month suspension period ending December 31, 2020 must repay the deferred Social Security payroll taxes to the IRS during the first four months of 2021, unless legislation is enacted to forgive the uncollected taxes. (Source: SHRM, emphasis mine. Given the Federal legislative stalemate, the chances that the uncollected taxes will be forgiven are not great.) In other words:
  • In all likelihood, the Federal Social Security payroll tax deferral will not be forgiven, and:
    • Employees will have double the usual amount of Social Security payroll taxes deducted from their paychecks January – April 2020 to make up for the September – December 2020 tax deferral period; and
    • Employers will also be required to pay double Social Security payroll taxes during the same period.
  • The hours required to retrofit payroll systems and communicate to employees that their Social Security  payroll tax deductions are only delayed, not forgiven are not worth the additional overhead costs and stress during a time where everyone is pandemic-stressed and financial resources for all continue to be tight.
  • Employees will not remember during the months of January – April 2020 that their Social Security payroll tax deductions were deferred during the September – December 2020 time frame and not forgiven; they in all likelihood will not be able to afford to save the equivalent of the deferral now; and will most certainly be upset when double the amount of Social Security payroll taxes are withheld from their paychecks for the months of January – April 2021 .
  • The morale impact given the above will require more hours, related overhead costs and stress than usual, negatively impacting the ability to lead and communicate to employees effectively.

In summary: it’s more like after-school detention than a holiday, in business and at work.