On August 8, President Trump issued a presidential memorandum that would defer鈥攏ot forgive鈥攖he withholding, deposit and payment of certain payroll taxes paid from Sept. 1 through Dec. 31, 2020. Specifically, the presidential memorandum: (1) applies to employees who 鈥済enerally鈥 make less than $4,000 on a pre-tax basis every two weeks, which works out to an annual salary of $104,000; (2) defers the employee鈥檚 obligation to pay a 6.2% Social Security tax per paycheck (the 1.45% Medicare tax will still have to be paid by all employees on all wages); and instructs the Treasury Department to look into how the federal government can forgive the deferred tax payment. Forgiveness of that payment, however, will require legislation from Congress. Unless legislation is enacted stating otherwise, those tax payments are due at the beginning of 2021. At least one major is instructing clients not to take immediate action to implement the deferral, as the IRS must issue guidance. Click 鈥渓earn more鈥 for further information on this measure.
Given the uncertainties and without implementing IRS guidance, it鈥檚 unclear whether any employer would take advantage of the deferral. It is also unclear whether there is any requirement that employers must temporarily cease withholding the employee鈥檚 share of the tax in addition to not depositing and paying the tax. IRS guidance would have to be issued that requires an employer to do all three steps, otherwise an employer could simply continue to withhold the amounts from employee wages and hold onto the withheld amounts to pay the taxes in 2021. It should be noted that on August 12, Treasury Secretary Mnuchin stated that the IRS 鈥渃an鈥檛 force鈥 employers to stop withholding payroll taxes from their employees鈥 paychecks.
It is also important to note that employers are already allowed to defer 50 percent of their portion of payroll tax payments due during the period that begins on March 27, 2020, and ends Dec. 31, 2020, delayed until Dec. 31, 2021, and the other 50 percent until Dec. 31, 2022, under the CARES Act. It should, again, be noted that the CARES Act only allowed for those payments to be deferred and not forgiven.
For more information, contact Matt Turkstra at matthew.turkstra@agc.org.