After Congress failed to act with additional economic relief legislation, the President issued four executive orders this past weekend. The most significant order provides for a deferral of payroll taxes. The remaining three orders address increased unemployment payments, eviction moratoriums, and student loan relief.
Under the terms of the President’s “Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster,” withholding, deposit, and payment of the employee’s share of the 6.2% Social Security tax is deferred on wages paid during the period beginning September 1, 2020 and ending December 31, 2020.
The deferral of the employee’s share of Social Security tax only applies to employees with bi-weekly, pre-tax income of less than $4,000, or a similar amount where a different pay period applies. This equates to an annual salary of approximately $104,000.
The authority under which this deferral is ordered allows only for a delay in payment due dates in response to a disaster declaration. This was the same authority under which the payment of taxes and filing of tax returns for the 2019 tax year were delayed to July 15, 2020.
The Treasury is ordered to issue guidance for implementing the deferral. In addition, they are instructed to explore avenues under which the deferred taxes can be eliminated completely, through either administrative means or legislation. Keep in mind, only Congress can forgive these taxes.
Significant questions remain regarding this executive order:
- Who is responsible to repay these deferred taxes? The employer or the employee?
- When are the deferred taxes due to be repaid?
- May an employer opt out of the deferral?
- May an employee opt out of the deferral?
- If the employer is responsible for repayment, how will terminated employees be treated?
Unfortunately, as now seems to be the norm, there are more questions than answers. The deferral is not scheduled to begin until 9/1 so Treasury has time to provide us with the necessary guidance. We will keep you informed as soon as we learn more.
If you have any questions please contact your DunlapSLK team member.