Important Heads-Up for Employers About the Payroll Tax Deferral Executive Order
On August 8, 2020, President Trump issued an Executive Order relating in part to a payroll tax deferral for employees. This Executive Order aims to help relieve some of the immediate financial impacts of the COVID-19 pandemic by allowing employees to take home more money. In essence, the Payroll Tax Deferral is an interest-free loan for workers.
Highlights of the Executive Order
- Payroll tax deferrals can begin September 1, 2020, and continue through December 31, 2020.
- Employees earning less than $2,000 weekly, or $104,000 per year, will be eligible to defer their payment of the Social Security tax, which is 6.2% of their gross wages.
- Medicare taxes of 1.45% and state and federal income taxes are NOT affected by this Executive Order.
- No interest or penalties will be assessed on the deferral, but unless there is further legislation to the contrary, all deferred taxes will need to be repaid at an unknown date in the future.
- Employees may choose to opt-out of the Payroll Tax Deferral.
What Does This Mean for Employers?
Plain and simple, it means more work in the weeks and months ahead!
Employers will bear the responsibility for educating their employees about their payroll tax deferral option and for ensuring their payroll systems process and account for the deferral properly. And, for those employees who elect to defer their tax payments, it will mean more tracking and reporting requirements on behalf of their employer.
It’s important to know that employers are still responsible for the employer portion of the Social Security tax, whether the employee defers their portion or not.
Executive Orders – Things to Understand
- Executive orders are not legislation or laws; they require no approval from Congress, and Congress cannot simply overturn them.
- Like laws, they are subject to legal review, and the Supreme Court or lower federal courts can nullify or cancel an executive order if they determine it is unconstitutional.
- Presidential executive orders, once issued, remain in force until they are canceled, revoked, adjudicated unlawful, or expire on their own terms.
Stay Tuned for Further Clarification of Many Unknowns
There are many questions that this Executive Order raises for both employers and employees. In fact, the unknowns outnumber the knowns at this point. But the Treasury Department is expected to provide further guidance in the weeks ahead and clarifications should be forthcoming on many items, including:
- Are any companies/employers not required to offer this tax deferral option to their employees?
- When will the repayment be due and how will that repayment be collected?
- Is there a possibility that the deferral of the taxes will be forgiven?
- What happens when employees have fluctuating salaries or receive bonuses?
- What to do when employees are employed for a short-term, such as with seasonal holiday workers.
- … and many more unknowns.
This blog does not constitute formal legal advice. It is recommended to always consult with your team of legal, tax, and accounting experts for professional guidance.
- Greenshades Software webinar, Payroll Tax Deferral, presented by Molly Van Kampen, CPP, Chief Evangelist, 18 August 2020.
- Staffing Industry Analysts Daily News, “Payroll Tax Suspension Raises Questions for Employers (NPR)“, 13 August 2020.
- PayNortheast, SHRM Member Network Digest, “Payroll Tax Holiday – What The Payroll Tax Holiday Means For You“, 9 August 2020.
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