On August 8, 2020, President Trump signed an executive order for “Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster” to provide additional economic relief to American workers.
The executive order directs Treasury to defer withholding, deposit and payment of the employee-portion of certain payroll taxes for the period from September 1, 2020 through December 31, 2020.
The deferral specifically applies to the Old-Age, Survivors, and Disability Insurance (OASDI) tax, more commonly referred to as the employee portion of Social Security Tax, which is assessed at a rate of 6.2%. The deferral would allow certain employees to receive more take-home pay in their paychecks. It is important to note that the deferral does not include the Medicare tax.
Eligibility for the deferral is limited to employees whose biweekly gross wages are less than $4,000, or approximately $104,000 per year. There is no phase-out to this amount, so if an employee earns $4,000 or more on a biweekly basis, it appears that no deferral would be permitted.
Also, such deferral does not apply to any amounts required to be paid by self-employed individuals with their quarterly tax estimates, or to the employer-portion of the OASDI tax. However, deferral of the employer portion of payroll taxes may be available under the CARES Act.
The order also calls for the Secretary of Treasury to “explore avenues, including legislation” to forgive the future obligation to pay the taxes deferred, which seemingly shifts the responsibility to Congress to come to an agreement on how to implement the presidential directive. Without further guidance, deferred amounts will come due after December 31, 2020.
The executive order is unclear regarding how future deferral amounts would be repaid if the obligation is not forgiven. In theory, some potential options would be that employers will need to collect additional withholding from employees that benefitted from deferral, or employees would need to repay the deferral on future personal income tax filings.
With September 1, 2020 quickly approaching, additional guidance and legislation is expected to be issued by the Secretary of Treasury.
Contact Raymond To at rto@cohencpa.com, Kevin Carney at kcarney@cohencpa.com or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.