Deferring Payroll Tax Obligations

On August 8, 2020, President Donald Trump signed several executive orders and memorandums with the intended purpose of providing financial relief to many Americans who have been affected by the COVID-19 pandemic. This included the Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, which aims to support working Americans by allowing the deferral of employee Social Security taxes for specific individuals.

The Memorandum directs the Secretary of the U.S. Department of the Treasury to defer the withholding, deposit and payment of the employee component of Social Security taxes on wages paid during the period of September 1, 2020 through December 31, 2020. The deferral can be made available to employees whose biweekly compensation generally is less than $4,000, calculated on a pre-tax basis. This would equate to $2,000 weekly and $8,666.66 monthly. Any amounts deferred will not be subject to any penalties, interest, additional amount, or addition to the tax. The Secretary of the Treasury will be responsible for issuing guidance to implement the memorandum.

The memorandum, however, did not include a deferral of the employee portion of federal income tax or Medicare tax. Also, it should be noted that employees may have to repay the deferred tax amounts, but there is currently no clarity regarding if and when the repayment would be required. Employers should advise employees that even though their take home pay is increasing, they may be required to repay the deferred taxes in the future. It is also a possibility that employers may decide not to implement the deferral due to the risks (such as employee termination) of not being able to withhold the taxes from future income.

Please be advised that this content has been prepared for informational purposes only and should not be relied on for legal or tax advice. The information is subject to change as guidance develops.