Short-Term Employee Payroll Tax Deferral

Last month, President Trump issued an executive order permitting employers to defer the employee share of social security tax (6.2%) for employees who earn $104,000 or less annually for September 1, 2020, through December 31, 2020. Yale University has evaluated this optional employee tax deferral program, and based on its potential adverse impact on employees and the university, Yale will not participate in this program.

Understanding Yale’s decision

This deferral program does not eliminate an employee’s social security tax liability, but instead, it merely extends the payment date by four months. Because the deferred social security tax must be withheld beginning January 1, 2021, through April 30, 2021, the four-month deferral ultimately results in a 100% increase in the employee share of social security tax withholding (12.4%) for the first four months of the calendar year 2021. An employee would have that full 12.4% withheld from the first four months of pay in 2021.

The short-term deferral could create financial hardship for employees whose earnings would be subject to a 100% increase in social security tax withholding for the first four months of the calendar year 2021 with any unpaid balances potentially subject to interest and penalties. Recently released U.S. Treasury Department guidance on the executive order also fails to address a number of issues that may impact the university.

For more information

Yale will continue to withhold the employee share of social security tax from employees’ pay during the calendar year 2020.

If you have any questions, please contact employee.services@yale.edu.