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State payroll system ready for Social Security withholding deferral; no final decision
Summary
Arkansas officials told lawmakers the state payroll system can implement the federal temporary Social Security withholding deferral for eligible employees but no final decision had been made; deferred taxes must be repaid by employers between Jan. 1 and April 30, 2021, and the state warned of potential liabilities if it fails to remit.
Secretary Amy Fancher told the committee that the state payroll system is configured to implement the temporary federal option allowing employers to defer withholding the employee portion of Social Security taxes from Sept. 1 through Dec. 30, 2020, for employees who earn less than $4,000 per pay period.
Fancher explained the deferral is optional for employers and employees, deferred amounts are not forgiven and must be recovered by the employer between Jan. 1 and April 30, 2021; failure to remit could expose the state to penalties. The memorandum from the president and subsequent IRS guidance set the eligibility threshold and timeline; the state has not made a final decision and said it continues to gather employee input.
Some committee members noted private employers may choose to cover deferred amounts for employees and raised uncertainty about whether future administrative action would relieve employers of repayment obligations. Secretary Fancher said the hearing provided an opportunity to clarify the repayment requirement and the payroll office’s readiness to implement the deferral if elected.
