Due to the current stalemate in Congress on a stimulus package, President Trump signed an Executive Memorandum related to deferring payroll taxes.
What does the memorandum say?
- The memorandum instructs Treasury Secretary Mnuchin to use his authority to defer the withholding, deposit and payment of the employee’s social security portion (6.2%) of the payroll taxes.
- The deferral would occur for wages paid between September 1, 2020 and December 31, 2020.
- The deferral would be available for employees with bi-weekly wages that are less than $4,000 during any pay period within the deferral period, which equates to an annual salary of $104,000. Total savings for a person maxing out on this limit would be approximately $2,149.
What does the memorandum not say?
- Note that this is a deferral of withholding and payment of taxes, not a reduction or forgiveness of the tax. This memorandum instructs the Secretary to explore avenues, including legislation, to eliminate the necessity for employees to repay these payroll taxes. Congress has yet to show any support for a payroll tax holiday that President Trump has floated for months. Assuming that this is actually a deferral of taxes for the employee, the following items are not addressed in the memorandum:
- When will the deferred amounts have to be repaid?
- Currently the employer is responsible and liable for withholding the social security taxes on the wages paid to an employee. Without a mechanism to ensure the employer will not be held responsible for the deferred amount in the future, some employers may be reluctant to avoid the withholding of the employee portion the payroll taxes.
- How will these taxes be repaid? Will the employer be responsible to collect and remit from future wages? What happens if the employee is not employed at the same place of business when the repayment is to happen? Will the employee have to calculate and repay the tax when they file their annual tax return?
We will have to await guidance from Secretary Mnuchin to clarify the uncertainties related to this Executive Memorandum from President Trump.