While the economy is still reeling from the COVID-19 pandemic, and the House and Senate are unable to agree on another relief package, on August 8, 2020 President Trump signed four Executive Orders (EO) to provide additional relief. The orders addressed enhanced unemployment payments, eviction moratoriums, student loan relief, and most notably a deferral of payroll taxes.
Payroll taxes, commonly referred to as employment taxes, are assessed on all employee wages and are comprised of 6.2% Social Security tax and 1.45% Medicare tax, each paid by both the employer and employee.
The EO for deferral of payroll taxes applies only to the employee’s share of the 6.2% Social Security tax for wages paid for the period beginning September 1, 2020 through December 31, 2020. The employer will not incur any penalty, interest, or addition to tax for not withholding, depositing, or making payment of these taxes for the deferral period. The deferral does not include the employee’s portion of Medicare tax.
The deferral only applies to employees with bi-weekly, pre-tax income of less than $4,000, or a similar amount if a different pay period applies.
Treasury is expected to release guidance to implement the deferral as numerous questions remain unanswered, including:
- how the employee will pay back the amounts deferred,
- how long they will have to repay amounts deferred,
- how to handle deferred taxes when employees change jobs,
- if the deferral is optional or required for employers, and
- if the deferred taxes will be forgiven.
This deferral is in addition to the deferral available for employer’s share of Social Security taxes under the CARES Act from March 27, 2020 to defer the employer portion of Social Security taxes over two years.
Please reach out to your Mueller Prost specialist with any questions.