Social Security Tax Deferral for Tax Year 2020

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Per the Presidential executive order issued August 8, 2020, the payment of employees' portion of Social Security tax can be deferred from September 1, 2020 through December 31, 2020. The deferred tax must be paid back between January 1, 2021 and December 31, 2021.

You can give employees the choice of whether to participate in the tax deferral. Employees must meet certain income requirements to participate. It is up to the employer to determine whether an employee is eligible. For more information, see the guidance from the Department of the Treasury.

Click the links below to view instructions on setting up the deferral and payback, setting up employee records for those who opt in, and viewing or editing related amounts in the Benefits window.

See the IRS notice for information on the due date extension to December 31, 2021.

  1. Create an earnings code.
    1. Select Payroll > Setup > Earnings Code Maintenance.
    2. Enter a new earnings code and description. For more information, see Earnings Code Maintenance - Fields.
    3. Select the following options:
      • Earnings Type: Miscellaneous
      • Method of Entry: Fixed Amount
      • Tax Rule: -800017 (Expense Reimbursement)
    4. Click Accept.
  2. Create a deduction code:
    1. Select Payroll > Setup > Deduction Code Maintenance.
    2. Enter a new deduction code and description. For more information, see Deduction Code Maintenance - Fields.
    3. Select the following options:
      • Deduction Type: Standard Deduction
      • Calculation Method: Equal to Earnings Code(s)
    4. In the Equal to Earnings code field, enter the earnings code that you created in step 1.
    5. Click Accept.

  3. Enter the deduction code in Payroll Options.

    This step is optional, but required if you want the deferred tax amount to print on various reports and employees' checks. However, the deferred Social Security tax amount will still calculate if you skip this step.

    If you enter the deduction code in Payroll Options, an earnings and offsetting deduction for the deferred amount are created when payroll taxes are calculated. The earnings and deduction totals will include these offsetting amounts.

    1. Select Payroll > Setup > Payroll Options.
    2. On the Entry tab, in the Deferral Deduction Code field, enter the deduction code that you created in step 2.
    3. Click Accept.

 

  1. Select Payroll > Main > Employee Maintenance.
  2. Select an employee and go to the Taxes tab. For more information, see Employee Maintenance - Fields.

  3. For the Federal tax group, select the Opt In to SS Tax Def check box.

    Note It is up to the employer to determine whether an employee is eligible to participate based on their income.

  4. Click Accept.

The employee's Social Security tax will be deferred from September 1, 2020 through December 31, 2020.

You don't need to enter the earnings or deduction code when processing payroll. The employee Social Security Tax will automatically be deferred if the employee opts in.

 

Important! Do not complete these steps until after you've processed your final payroll run for tax year 2020.

  1. Set up a deduction code.

    1. Select Payroll > Setup > Deduction Code Maintenance.

    2. Enter a new deduction code and description. For more information, see Deduction Code Maintenance - Fields.

    3. Select the following options:
      • Deduction Type: Standard Deduction
      • Calculation Method: Fixed Amount

  2. Enter the deduction code in Payroll Options. This step is necessary to update the Paid Back amount field.

    1. Select Payroll > Setup > Payroll Options.

    2. On the Entry tab, in the Payback Deduction Code field, enter the deduction code that you created in step 1.

    3. Click Accept.

  3. Apply the deduction to employees to automatically calculate it.

    This step is optional. If you skip this step, you can manually enter the payback deduction code when processing payroll, and the appropriate amounts are updated to the Paid Back field in the Benefits window.

    1. Select Payroll > Setup > Deduction Code Maintenance.

    2. Select the payback deduction that you created in step 1.

    3. Click Apply.

    4. In the Apply Deduction to Employees window, click Proceed.

    5. When asked if you want to calculate the payback amounts for the employee, click Yes.

      Note If you click No, the deduction information is still applied, but the payback amount and goals are not calculated.

If you applied the payback deduction code in step 3, the payback amount is automatically calculated when you process payroll, and the Paid Back field in the Benefits window is updated when you update the Check Register.

If you did not complete step 3 to apply the deduction code, you must manually enter it when processing payroll.

Important! If you set up an automatic deduction in step 3 and chose to calculate the payback amount and goal, review the automatic deduction amount that was created for each employee. Verify that the amount and goal is calculated as expected to ensure that the employee's full deferred tax amount will be withheld by December 31, 2021.

 

  1. Select Payroll > Main > Employee Maintenance.
  2. Select an employee. For more information, see Employee Maintenance - Fields.
  3. Click the More arrow and then click Tax Summary.
  4. In the Employee Tax Summary window, click the More arrow and then click Benefits.

  5. In the Benefits window, the employee's deferred Social Security tax for 2020 appears in the Deferred Quarter 3 and Deferred Quarter 4 fields. The amount of deferred tax that has been paid back appears in the Paid Back field.

    The tax that is deferred from September 1, 2020 through December 31, 2020 and the paid-back amounts are automatically updated when you update the Payroll Check Register, but you can edit the amounts and click OK to save the changes.

    Any amounts entered in these fields for 2020 are cleared when you close the 2020 tax year.

 

Payback goal

If you applied the deduction code for the payback amount and chose to automatically calculate the payback amount and goal, the payback goal is calculated as follows.

Payback goal = deferred tax for 2020 quarter 3 + deferred tax for 2020 quarter 4 - deferred tax that's been paid back

You can view the amounts referenced in the formula in the Benefits window.

Automatic deduction amount

If you applied the deduction code for the payback amount and chose to automatically calculate the payback amount and goal, the payback deduction amount is calculated as follows.

Payback deduction = payback goal / number of pay cycles from January 1, 2021 through December 31, 2021

The employee's pay cycle is set on the Pay Defaults tab in Employee Maintenance. The list below shows the number of pay cycles depending on which one is selected.

  • Daily = 255
  • Weekly = 51
  • Biweekly = 25
  • Semi-Monthly = 24
  • Monthly = 12
  • Quarterly = 4
  • Annually = 1

Example:

John is paid on a weekly pay cycle.

He had $496 in deferred tax in 2020 quarter 3 and $620 in deferred tax in quarter 4.

None of John's deferred tax has been paid back.

When the automatic deduction process is run, an automatic deduction is created with the following amounts:

Goal: 496 + 620 = 1,116

Amount: (496 + 620) / 51 = 21.88

 

Deferred Social Security tax

You are required to report employees' Social Security tax that was deferred between September 1, 2020 through December 31, 2020. The deferred tax amount in the Benefits window will be reported on the 941 form on line 13b (Deferred amount of Social Security tax) and line 24 (deferred amount of employee share of Social Security tax included on line 13b).

Payback of deferred Social Security tax

You are not required to report employees' Social Security tax payback amount on 941 forms. It will be handled using a payment voucher. For more information, see the instructions for Form 941.

Social Security tax that is deferred from September 1, 2020 through December 31, 2020, is withheld between January 1, 2021 through December 31, 2021, and is not reported on the 2020 W-2 form should be reported in box 4 on Form W-2c (Corrected Wage and Tax Statement) for tax year 2020 after the tax is paid back.

For more information, see Form W-2 Reporting of Employee Social Security Tax Deferred under Notice 2020-65 on the IRS website.

See the Custom Reports section of this article for information on a customer report that can help you determine your employees' deferred Social Security tax amounts as well as the amounts that have been paid back.

 

Two custom reports are available:

Use PR_SSPayBackCUSTOM.rpt to print the Social Security tax amounts that have been paid back for each employee. Amounts shown in the Benefits window in the Deferred Quarter 3, Deferred Quarter 4, and Paid Back fields are included on this report.

Use PR_SSPayBackBalancesCUSTOM.rpt to print the amount of deferred Social Security tax that has not been paid back for each employee.

These reports must be added to the menu using Report Manager. The report files and instructions are located in the ..\MAS90\Utility folder.