Self-employed individuals and employers can defer the payment of their share of Social Security taxes for wages paid to employees from March 27 through December 31, 2020. The deferred taxes are required to be paid back by April 30, 2022, or in equal installments by December 31, 2021, and December 31, 2022. To be eligible, the business must have been affected by COVID-19 and meet certain criteria, such as having a decline in gross receipts in 2020 compared to 2019.
Employer Size Requirements
The Social Security tax deferral, a temporary measure implemented during the COVID-19 pandemic, allows certain employers to defer payment of the employee portion of Social Security taxes (6.2%) on wages paid from March 27, 2020, to December 31, 2020. The deferred taxes are payable in two installments, half due by December 31, 2021, and the remaining half due by December 31, 2022.
The following employer size requirements apply for the Social Security tax deferral:
- Average number of employees: The employer must have an average number of employees of 500 or less during the calendar year 2020.
- Employee status: The deferral applies to wages paid to employees, including full-time, part-time, temporary, and seasonal workers. However, wages paid to independent contractors are not eligible for deferral.
Employers who meet these requirements can defer Social Security tax payments for their employees, but they are still responsible for withholding and paying the employer’s share of Social Security taxes (6.2%).
| Year | Employer’s Social Security Tax Rate | Employee’s Social Security Tax Rate |
|---|---|---|
| 2020 | 6.2% | 6.2% (deferrable) |
| 2021 | 6.2% | 12.4% (includes deferred amount) |
| 2022 | 6.2% | 6.2% (includes deferred amount) |
Employers who qualify for the deferral are encouraged to consult with their tax advisor to determine if this option is right for them.
Industry Exemptions
The following industries are exempt from the Social Security tax deferral:
- Government employers
- Nonprofit organizations
- Religious organizations
- Agricultural employers
- Educational institutions
Employers in these industries will not be able to defer Social Security taxes for their employees.
| Industry | Exempt from Social Security Tax Deferral |
|---|---|
| Government employers | Yes |
| Nonprofit organizations | Yes |
| Religious organizations | Yes |
| Agricultural employers | Yes |
| Educational institutions | Yes |
Employee Limitations
Only certain federal employees are eligible for the Social Security tax deferral, including:
- Employees of the federal government (including the U.S. Postal Service and the Tennessee Valley Authority)
- Employees of state and local governments who are covered by the Social Security system
- Employees of nonprofit organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code
To be eligible, employees must also meet the following requirements:
- Be employed in a job that is covered by Social Security
- Earn wages or self-employment income of at least $400 in the calendar year
- Not have reached age 62 by the end of the calendar year
- Not be receiving Social Security retirement benefits
- Not be enrolled in Medicare Part B
| Requirement | Description |
|---|---|
| Employed in a job that is covered by Social Security | Means that the employee’s wages are subject to Social Security taxes. |
| Earn wages or self-employment income of at least $400 in the calendar year | This includes wages, tips, and self-employment income. |
| Not have reached age 62 by the end of the calendar year | Employees who are age 62 or older are not eligible to defer Social Security taxes. |
| Not be receiving Social Security retirement benefits | Employees who are receiving Social Security retirement benefits are not eligible to defer Social Security taxes. |
| Not be enrolled in Medicare Part B | Employees who are enrolled in Medicare Part B are not eligible to defer Social Security taxes. |
Income Restrictions
To be eligible for the Social Security tax deferral, taxpayers must meet certain income restrictions. The amount of wages subject to deferral is limited to:
For 2020:
- $100,000 for single individuals
- $150,000 for married couples filing jointly
For 2021:
- $100,000 for single individuals
- $200,000 for married couples filing jointly
These limits are based on the employee’s adjusted gross income (AGI), which is their total income minus certain deductions and adjustments. If an employee’s AGI exceeds the applicable limit, they are not eligible for the deferral.
| Year | Single | Married Jointly |
|---|---|---|
| 2020 | $100,000 | $150,000 |
| 2021 | $100,000 | $200,000 |
Well, there you have it, folks! Now you know all about who qualifies for the Social Security tax deferral. It’s not the most straightforward thing in the world, but hopefully, this article has helped clear things up for you. If you have any other questions, be sure to check out the IRS website or give them a call. Thanks for reading, and we’ll see you again soon!