The stimulus checks came and went, but the COVID-19 pandemic is still here. In an ongoing effort to provide relief for this President Trump signed a Presidential Memorandum on August 8th to defer the employee portion of Social Security taxes.
The taxes are not deferred for all employees, and they will have to be paid back in the future, though the action directs the U.S. Treasury Secretary to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.”
On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act. A short time later, President Trump signed into law the Coronavirus, Aid, Relief and Economic Security (CARES) Act. Both laws contain economic relief provisions for employers and workers affected by the COVID-19 crisis.
The CARES Act allows employers to defer paying their portion of Social Security taxes through December 31, 2020. All 2020 deferred amounts are due in two equal installments — one at the end of 2021 and the other at the end of 2022.
New bill talks fall apart
Discussions of another COVID-19 stimulus bill between Democratic leaders and White House officials broke down in early August. As a result, President Trump signed the memorandum that provides a payroll tax deferral for many — but not all — employees.
The memorandum directs the U.S. Treasury Secretary to defer withholding, deposit and payment of the tax on wages or compensation, as applicable, paid during the period of September 1, 2020, through December 31, 2020. This means that the employee’s share of Social Security tax will be deferred for that time period.
However, the memorandum contains the following two conditions:
- The deferral is available with respect to any employee, the amount of whose wages or compensation, as applicable, payable during any biweekly pay period generally is less than $4,000, calculated on a pretax basis, or the equivalent amount with respect to other pay periods; and
- Amounts will be deferred without any penalties, interest, additional amount, or addition to the tax.
The Treasury Secretary was ordered to provide guidance to implement the memorandum.
The memorandum (and the other executive actions signed on August 8) note that they’ll be implemented consistent with applicable law. However, some are questioning President Trump’s legal ability to implement the employee Social Security tax deferral.
While many may be looking forward to the temporary relief from payroll taxes, employers are left with many practical questions. For example, since this is only a deferral, will employers have to withhold more taxes from employees’ paychecks to pay the taxes back, beginning January 1, 2021? Without a law from Congress to actually forgive the taxes, will employers be liable for paying them back? What if employers can’t get their payroll software changed in time for the September 1 start of the deferral? Are employers and employees required to take part in the payroll tax deferral or is it optional?
In the coming weeks, more details about this action will start to appear, and new legislation could follow. To stay up to date, for help answering the questions listed, and more, please contact your Rudler, PSC advisor at 859-331-1717. Also be sure to keep an eye on our Rudler Reviews for any future updates.
RUDLER'S TAX MANAGEMENT & PLANNING TEAM
This week's Rudler Review is presented by Becca Thorman, Staff Accountant and John Wood, CPA, CVA.
If you would like to discuss your particular tax situation, contact Becca or John at 859-331-1717.
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