On August 8th, President Trump signed an executive memorandum to allow the deferral of payroll taxes incurred during the period September 1, 2020 through December 31, 2020. The memorandum states that employees whose wages or compensation are less than $4,000 during any bi-weekly pay period may defer certain payroll taxes. Per the memorandum, eligible payroll taxes may be deferred without incurring penalties or interest.
Which Taxes Can be Deferred?
The payroll tax eligible for deferral is the employee portion of Social Security tax (6.2% of taxable wages and capped at an annual wage base of $137,700). We want to emphasize that the memorandum only allows for the deferral of eligible Social Security taxes, not the forgiveness of those taxes.
Many Questions Unanswered
The presidential memorandum instructs Treasury to “explore avenues, including legislation” to waive the taxes altogether. However, Treasury has yet to act and many believe only Congress can authorize forgiveness. Many significant questions remain including:
Is participation by employers voluntary?
How will employees opt-in or out?
If the taxes are not forgiven, how and when will they be paid? By the employee? The employer? In lump sum? As additional withholding in January 2021?
Who is responsible for penalties if deferred taxes are not repaid?
How are wages and compensation defined?
The memorandum is scheduled to go into effect September 1st. There are many unanswered questions, no indication when guidance will be released from Treasury, and Congress does not reconvene until September 8th. At this time, our recommendation is to continue employee payroll tax withholding until clear guidance is issued.
Have questions? Please give us a call.