Recently, the President signed an Executive Order allowing deferral of Social Security taxes starting with pay periods on or after September 1, 2020 until the last pay period ending December 31, 2020. Prior to official IRS guidance that was released this week, the implementation of this Executive Order was vague.
The Order turns out to simply be a deferral, not an exemption like it was presented in the beginning. In other words, what you do not pay now you will have to pay in the first four months of 2021.
Basically, this is the plan- If you make less than 4K bi-weekly (104K a year), you can choose to defer your Social Security Taxes that you would pay on your income the rest of the year to the first four months of next year (2021). Social Security taxes are 6.2% of your wages so if you make 1K each pay cycle, you can put off paying the $62.50 with each check until December 31 and then pay it back by April 30, 2021. After May 1, 2021, interest and penalties would begin to accrue.
Really just a small, short term, interest free loan.
Should you do it?
Generally, no. First, this puts some employers in a bind as they are now deputized as tax collectors should an employee elect to defer the tax and leave the company before the due date of the payback. Second, the amount is not significant. Even if you did make the maximum of 4K every two weeks, it would potentially be a $1500 liability going into 2021. It is a deferral lasting less than half a year and most people need the loans much longer. Lastly, with all the changes each week with COVID, few people can predict what life will be like on Aril 30.
Will it be forgiven? That is an unknown. Section 4 of the Order instructs the Treasury to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.” This is a possibility so for some, it might be worth the gamble. See https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/