Presidential Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster

On August 8, 2020, the President issued a Memorandum Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, directing the Secretary of Treasury to use his authority to defer the withholding, deposit, and payment of the employee share of Social Security taxes on applicable wages paid from September 1, 2020, through December 31, 2020. As currently written, this measure is merely a temporary deferral, and not forgiveness of any tax obligations.

 This Memo is controversial in that it appears to infringe on enumerated powers of Congress to make laws, collect taxes, and appropriate funds. Moreover, many questions are left unanswered, such as will the deferral lead to eventual forgiveness, or will there simply be a huge unpaid bill come tax time, and who is responsible for such bill if an employee is no longer employed at the time the amounts become due?

 The Memo does not explicitly direct private employers to do anything, and it appears most prudent at this time not to defer payroll tax withholdings, unless and until directed or advised otherwise. Responsibility for thousands in unpaid payroll taxes come tax time could be disastrous for employees and employers alike, and there is not currently enough guidance about the legality or logistics of this Memo.

 Please note this current global emergency and applicable laws, regulations, proposals, guidance, advice, and responses change rapidly. We strive to keep you up to date as much as possible, but this blog article is intended for general informational purposes only and should not be construed as legal advice or opinion. Contact myHRcounsel with questions concerning specific facts and circumstances.

UPDATE (August 31, 2020):  The Department of Treasury and Internal Revenue Service recently issued guidance (PDF) implementing the Presidential Memorandum issued on August 8, 2020, allowing employers to defer withholding and payment of the employee’s portion of the Social Security tax if the employee’s wages are below a certain amount.

 The guidance makes relief available for employers and generally applies to wages paid starting September 1, 2020, through December 31, 2020.

The employee Social Security tax deferral may apply to payments of taxable wages to an employee that are less than $4,000 during a bi-weekly pay period, with each pay period considered separately. No deferral is available for any payment to an employee of taxable wages of $4,000 or above for a bi-weekly pay period.

The guidance postpones the time for employers to withhold and pay employee Social Security taxes.

It is important to understand that neither the Memo, nor the IRS guidance, require an employer to defer the payment of employee applicable payroll taxes. Accordingly, employers may choose to continue to withhold and deposit employee payroll taxes as usual. In fact, the IRS guidance does not seem to alleviate any of the legal and practical concerns associated with implementation of the Memo. It is likely that most employers will choose to continue to withhold and deposit applicable employee payroll taxes as usual.

 Please note this current global emergency and applicable laws, regulations, proposals, guidance, advice, and responses change rapidly. We strive to keep you up to date as much as possible, but this blog article is intended for general informational purposes only and should not be construed as legal advice or opinion. Contact myHRcounsel with questions concerning specific facts and circumstances.

Written by: Brittany Nicholls