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On August 8, President Trump signed a memorandum that directed “the Secretary of the Treasury to use his authority to defer certain payroll tax obligations with respect to the American workers most in need” as a result of the coronavirus pandemic. The administration’s hope is that, by temporarily eliminating the employee payroll tax, they can help mitigate the financial hardship some citizens are experiencing as a result of the COVID-19 pandemic.
What Employers Need to Know
This new payroll tax deferral executive order directs the Secretary of the Treasury to defer (not suspend) the withholding, deposit, and payment of the employee portion of Social Security taxes for wages paid from September 1, 2020 through the end of this year.
The executive order applies to any employee who is paid less than $4,000 on a pre-tax basis per bi-weekly pay period or the equivalent in other payroll frequencies is $2,000 weekly; $4,333.33 semimonthly; and $8,666.66 monthly.
What’s important to understand is that a tax deferral doesn’t release employees from eventually paying their portion of the relevant taxes. The memorandum says that the payments will be deferred, without any penalties, or interest.
- Employers remain liable to collect from employees and pay to the IRS after December 31, 2020, the full amount of the employee Social Security taxes deferred.
- Employers are required to withhold the total taxes deferred for an employee from the employee’s wages ratably for the four-month period from January 1 – April 30, 2021.
- If an employee is not employed with the employer for the full four-month period, the employer is still obligated to pay the total deferred taxes to the IRS. Interest, penalties and additions to tax will begin to accrue on May 1, 2021.
- Employers are permitted, if necessary, to “make arrangements to otherwise collect” the total taxes due from the employee, but the guidance is silent on how an employer may do so.
For more information, visit:
- https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-2020
- https://www.adp.com/spark/articles/2020/09/treasury-guidance-issued-concerning-deferral-of-employee-social-security-tax.aspx
- https://www.paycor.com/resource-center/payroll-tax-deferral-what-it-means-for-your-business-and-employees
If you have additional concerns or questions, please contact your tax advisor.