On August 28, 2020, the U.S. Department of the Treasury issued guidance to address President Trump’s August 8th memo authorizing the deferral of the withholding, deposit, and payment of Social Security payroll tax obligations for affected taxpayers. Employers are not required to defer the payment of Social Security taxes, the deferral is optional, but any deferred taxes must be repaid. The guidance and the memo do not address whether employees can elect to defer (or decline the deferral of) this federal payroll tax.
Affected taxpayers are defined as employers that are:
- Required to withhold and pay their employees’ share of federal payroll taxes (OASDI/Social Security taxes and Medicare, collectively FICA); and
- Affected by the COVID-19 emergency.
The tax deferral is applicable to:
- Wages paid September 1, 2020 through December 31, 2020; and
- Only for employees who earn less than $4,000 during any biweekly pay period, before taxes, or the equivalent amount for other pay periods.
The $4,000 threshold determination is made on a pay period-by-pay period basis. For instance, if an employee’s pay for one pay period is less than $4,000, then that amount is considered applicable wages for that pay period, and the deferral applies to the wages paid to that employee for that pay period regardless of their wages from other pay periods.
This deferral is without penalty interest, additional amounts, or addition to the tax; however, payment of these taxes is delayed not forgiven, and the deferred taxes must be paid the following year. Congressional action may change this repayment requirement but for now, employers must withhold and pay the total applicable taxes, that were previously deferred in 2020 along with those that will be due for 2021, on the wages they pay between January 1, 2021 and April 30, 2021.
Failure to make these tax payments in 2021 will result in interest, penalties, and additions to tax will begin to accrue on May 1, 2021 on any unpaid amounts. If necessary, employers may plan to otherwise collect the total applicable taxes from the employee.
Note: The U.S. Department of Defense (DoD) is automatically deferring the withholding, effective September 2020, and civilian employees’ 6.2 percent OASDI tax withholding will be temporarily deferred if their wages, subject to OASDI, are less than $4,000 in any given pay period. The DoD provides a fact sheet and in depth FAQs addressing the program and deferral. For instance, an FAQ addresses that employees who separate or retire in 2020,before the Social Security tax can be collected in 2021, are still responsible for the Social Security tax repayment.
DOL Opinion Letters on FLSA Compliance
On August 31, 2020, the U.S. Department of Labor announced the New opinion letters addressing the following Fair Labor Standards Act (FLSA) compliance issues:
- FLSA2020-11: Whether a private “oilfield service company” that provides waste-removal services for oilfield operators may qualify as a “retail or service establishment” eligible to claim the FLSA’s Section 7(i) exemption for certain truck drivers that it employs.
- FLSA2020-12: Employer compliance with FLSA’s minimum wage requirements when reimbursing delivery drivers for business-related expenses incurred while using their personal vehicles during the course of employment.
- FLSA2020-13: Whether part-time employees who provide corporate-management training, and are paid a day rate with additional hourly compensation, qualify for the learned professional exemption and the highly compensated employee test under Section 13(a)(1) of the FLSA.
- FLSA2020-14: Whether employees’ hours must fluctuate above and below 40 hours per week to qualify for the fluctuating workweek method of calculating overtime pay.
An opinion letter is an official, written opinion by the Department’s Wage and Hour Division (WHD) on how a particular law applies in specific circumstances presented by the person that requested the letter.
COVID-19, FFCRA, and Reopening Schools
On August 27, 2020 the U.S. Department of Labor’s Wage and Hour Division (WHD) published new frequently asked questions for workers and employers about qualifying for paid leave under the Families First Coronavirus Response Act (FFCRA) and the reopening of schools. These FAQs:
- Explain eligibility for paid leave and the varied formats and schedules schools have announced as they plan to reopen, including blending in-person with distance learning.
- Explain the benefits and protections available under both the paid sick leave and the expanded family and medical leave provisions of the FFCRA.
- Address whether employees qualify for paid leave when:
- A child attends a school operating on an alternate day basis;
- A parent chooses remote learning when in-person instruction is available; and
- A school begins the year with remote learning but may shift to in-person instruction if conditions change.
The FFCRA allows certain employees to take up to two weeks of paid sick leave and take up to 12 weeks of expanded family and medical leave, ten of which are paid, for specified reasons related to COVID-19. An eligible employee can take both types of paid leave because of a need to care for the employee’s child whose school or place of care is closed, or whose childcare provider is unavailable, due to COVID-19 related reasons.
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