Social Security Tax Deferral

On August 28, 2020, the Internal Revenue Service issued IRS Notice 2020-65 [PDF]. This notice provides instructions on the deferral (delayed collection) of the employee’s portion (6.2%) of the old-age, survivors, and disability insurance (OASDI) tax obligations. The GSA Payroll Team has been informed that the federal government as an employer has elected to implement this OASDI tax deferral for all executive branch agencies and their eligible employees.

OASDI stands for old age, survivors, and disability insurance tax which is commonly referred to as Social Security tax. This tax is the money that the GSA Payroll Team deducts from your biweekly pay (known as the employee’s share) and is added to an additional OASDI amount that your employing agency pays for you (known as the employer’s share) that goes to the federal government in order to fund the Social Security program. Both amounts are specifically identified on your biweekly Earnings and Leave Statements.

The OASDI taxes listed under “Deductions” represents your tax payment (known as the employee’s share). The OASDI taxes listed under “Benefits Paid by Govt.” are the taxes your agency pays on your behalf (known as the employer’s share).

Employees are eligible whose social security wages are less than $4,000.00 as calculated for the bi-weekly pay period.

You can calculate your social security wages by using information from your Earnings and Leave Statement on Employee Express. From the home page, click on “View your Earnings and Leave Statement.” From your Gross Pay amount (in the “Your Pay Consists Of” section) subtract the following pay period deductions (if any):

• Health Insurance Premium (HBI)
• Flexible Spending Account “FSA” (both the Dependent Care and Health Care amounts)
• Dental Insurance
• Vision Insurance

If the total of your social security wages is less than $4,000, and you are not a CSRS employee, then you are eligible and no employee’s share of OASDI taxes will be withheld in that pay period.

Your eligibility for this Tax Deferral will be calculated by the GSA payroll system every pay period. This is necessary as your eligibility may fluctuate due to additional premium wages earned, awards and changes to your grade/step and applicable employee benefits.

This tax deferral will only apply to those employees who currently are paying OASDI taxes for their respective retirement systems. Employees who are under the Civil Service Retirement System (CSRS) will not be eligible as CSRS is a defined benefit plan, financed through joint employer-employee contributions and not OASDI tax payments.

The Executive Branch as the employer has decided to implement this tax deferral on the employee portion of social security taxes across the board for all eligible employees during the second full pay period in September 2020. If your agency is not an Executive Branch agency please contact your agency’s payroll point of contact for its plans on enacting this tax deferral program. Depending on your agency’s instructions, the GSA Payroll Team will have taken the necessary steps to comply with these instructions.

The IRS notice states that it will apply to all “Applicable Wages means wages as defined in section 3121(a) or compensation as defined in section 3231(e)3 paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020, but only if the amount of such wages or compensation paid for a bi-weekly pay period is less than the threshold amount of $4,000, or the equivalent threshold amount with respect to other pay periods.”

The GSA Payroll Team will implement this tax deferral, for all applicable agencies and their employees, in the pay period ending September 12, 2020 (pay processing date September 17, 2020). This will remain in place through the pay period ending date December 19, 2020 (pay processing date December 24, 2020).

If you are an eligible employee and your biweekly pay calculation meets the IRS Notice definition, then you will see your first changes on your pay period ending September 12, 2020 (pay processing date September 17, 2020) paycheck your employee’s share of OASDI deduction for all applicable pay periods will be zero as shown on your Earnings and Leave Statement. If you are not an eligible employee there should be no changes to your social security changes on your paycheck related to this tax deferment.

The IRS notice states that taxes deferred under this notice must be withheld and paid between January 01, 2021 and April 30, 2021 or interest, penalties and additions to tax will begin to accrue on May 1, 2021, with respect to any unpaid Applicable Taxes.

(Updated 1/6/2021) On December 27th, 2020 the President signed the Consolidated Appropriations Act. 2021 into law which included (in Sec. 274) an extension of the payback period from April 30, 2021 to December 31, 2021.

Beginning pay period ending January 2, 2021 (pay disbursement date January 8, 2021), OASDI payroll deductions (6.2%) will resume for all employees. Those employees with deferred tax balances will see both the current pay period and the previous uncollected employee’s share of OASDI deductions. The deferred taxes will be collected on a prorated basis (total amount deferred divided by 26) beginning in the pay period ending January 2, 2021 (pay processing date January 8, 2021) and continue through the pay period ending date December 18, 2021 (pay processing date December 23, 2021) or until such time that the total deferred tax balance has been collected. As a result, employees with tax deferrals will have their net pay reduced until all deferred taxes have been paid.