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Paying Back Deferred Social Security

Updated: Feb 13, 2023

Back in August, I wrote a column entitled “Trump Payroll Tax Holiday.” Basically, President Trump had done an executive order to allow employees to elect to stop having Social Security and Medicare tax withheld from their paychecks for the rest of 2020. It was considered a “loan” at the time. The hope was that when Congress passed a 2nd Economic Stimulus bill, it would include a provision for forgiving this “loan.”

Well, Congress wasn’t in a giving mood when they finally passed the long anticipated Economic Stimulus bill a couple weeks ago. They only gave everybody a $600 stimulus payment and, to add insult to injury, did NOT forgive this “loan” thus setting up the scenario of having to pay it back in 2021.

The IRS has issued guidelines to employers on how to get the “loan” paid back through extra payroll withholding. Specifically, they issued a statement that said, “The employer must withhold and pay the total deferred employee share of social security tax ratably from wages paid to the employee between January 1st 2021, and April 30th 2021.” Also, the IRS went on to say, “The employer is liable to pay the deferred taxes to the IRS and must do so before May 1, 2021, to avoid interest, penalties, and additions to tax on those amounts.”

Let me interpret and make this as simple as possible. Basically, the employer should total up the amount that should have been withheld in late 2020 but was not. Divide that by the number of pay periods for the specific employee for the first 4 months of 2021. That amount should be withheld from the employees’ paycheck each pay period until the “loan” is paid back. The employer must pay the “loan payments” received from the employee with their normal payroll tax deposits. The employer MUST have accomplished this by April 30th of 2021. (Including paying any amounts withheld from employees’ checks being deposited with the IRS by April 30th.)

Well, the simple way of looking at this is to be glad for the “loan” at a difficult time. Perhaps employees used it to help cover costs of Christmas? But now, it’s time to pay it back. The good news is that it is an interest free loan! Way better than borrowing on credit cards to pay for Christmas.

Several folks asked that their regular Federal Income Tax withholding be increased during the fall of 2020 so that their net paychecks were the same. The plan was that if the Congress forgave the “loan” then they would take it all in the form of an extra refund when they filed their 2020 tax return. If Congress did not forgive the “loan” (as we now know that they didn’t), then their plan was to leave that amount on deposit for 2021 taxes and have their Federal Income Tax withholding reduced until the ”loan” was paid back, in order to keep their net paychecks the same.

Rats! There was hope. If Donald Trump had won a second term, there was a great chance that he would have pushed Congress to forgive this “loan.”

Did you hear? Job 9:27 says, “…I will forget my complaint, I will put off my sad face and wear a smile.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at Also on Facebook.

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