Trump Signs Payroll Tax Deferral Executive Order

Last weekend President Trump signed an executive order to defer the payment of the employee’s share of the Social Security portion of FICA taxes, which is 6.2%.  This goes into effect September 1, 2020 until December 31, 2020.  The order does not affect the Medicare portion of the payroll tax, nor does the order affect the employer portion of either of these taxes.  The order limits deferrals to employees with biweekly, pretax income of less than $4,000 (or a similar amount where a different pay period applies).  This equates to an annual salary of about $104,000.

What is important to note, is that this order is not a suspension of the payroll tax (a “payroll tax holiday”), but merely a deferral.  After December 31, 2020 the taxes must be withheld and paid.  The President directed the Treasury to find ways to implement a full suspension later.  However, this could prove difficult.  There is currently a debate over the legality of the executive order and the Treasury cannot abate or suspend the collection of taxes without congressional approval.

It is anticipated that Treasury will provide additional guidance relating to compliance with this order.   Until that point, we are taking the approach with our payroll clients of withholding the full amount of an employee’s FICA tax until further guidance is issued.  Employers that receive pushback from employees may want to explain that the order is not a suspension of payroll tax, rather the employee most likely will be obligated to pay back the amounts later.

This order does not affect the payroll tax deferral of the CARES Act.  Under the CARES Act, employers can defer payment of the EMPLOYER share of Social Security tax on wages thru December 31, 2020.  These deferred payments must be paid over two years, with one-half of the amount due by December 31, 2021, and the other half due by December 31, 2022.

Once additional guidance is released by the Treasury, we will provide an update on the executive order relating to the payroll tax deferral.

If you would like additional information or to discuss the topics mentioned, please contact Kelley J. Wolfe, CPA at 317-260-4460 or kwolfe@greenwaltcpas.com