On Aug. 8, 2020, President Trump signed an executive memorandum that defers an employee’s portion of Social Security and Medicare taxes from Sept. 1 through Dec. 31, 2020. At this point, the taxes are just deferred, meaning they’ll still have to be paid at a later date. However, the action directs U.S. Treasury Secretary Steven Mnuchin to “explore avenues, including legislation, to eliminate the obligation to pay the taxes.”

The exact impact on employers and employees isn’t yet known. There are many open questions, including President Trump’s legal ability to implement the deferral. Some experts believe there may be legal challenges to this executive action.

Deferral details

The payroll tax deferral will be available for “any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000.”

The deferral will be calculated on a pretax basis or the equivalent amount with respect to other pay periods. Plus, the amounts will be deferred without any penalties, interest, additional amount, or addition to the tax.

Additional Executive Orders

The president also signed executive orders on the following measures:

  • Provide $300 per week in supplemental unemployment benefits and calls for states to kick in another $100 per week, bringing the total supplement to $400 per week for each recipient. However, participation by states is optional and many state leaders are saying they do not have the money. The federal funds are expected to start flowing by September.
  • Extend the existing deferral of federal student loan payments through Dec. 31, 2020.
  • Direct the U.S. Department of Housing & Urban Development (HUD) to identify temporary financial assistance measures to help renters and homeowners avoid eviction or foreclosure. This is NOT an extension of the federal ban on evictions, which expired on July 31, 2020. This executive order only directs HUD to do a study.

Stay tuned for additional guidance

No doubt there is much to flesh out about this payroll tax deferral. Secretary Mnuchin has been instructed to provide additional guidance and employers can’t act on the deferral until that happens. It’s also possible Congress could take action. We’ll be monitoring developments and their implications, so turn to us for the latest information.

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