Social Security and Medicare taxes are deducted when wages are paid. (See §1408 for special rules on cash and charged tips).
If an employer is not sure if an employee will meet the minimum dollar test for household employees (as explained in §915), for agricultural employees (as explained in §901), or for some homeworkers (as explained in §830), the employer may:
Deduct the tax when the payment is made; or
Wait until the test is met.
If the employee submits written reports of tips more than once a month (§1408), the employer may collect the Social Security tax on tips even if the cash-pay test in §1408 is not yet met.
If the employer collects the taxes and later finds that the employee does not meet the test, the employer must repay the Social Security taxes deducted to the employee. If the employer cannot locate the employee, the taxes should be sent to IRS.
Last Revised: Jul. 1, 2004