On August 8, 2020, President Donald Trump issued a presidential memorandum allowing employees to defer the social security portion of their payroll taxes during the period of September 1, 2020 through December 31, 2020.
At this time, the Treasury Department has not published guidance required to implement this order. Mitchell Wiggins is monitoring the Treasury announcements and will provide analysis via email as soon as those guidelines are released. In the interim, the following summarizes the details of the memorandum and what information employers are lacking to comply this order.
Who is an eligible employee?
The memorandum states that eligible employees are those with “wages or compensation, as applicable, payable during any bi-weekly pay period generally less than $4,000, calculated on a pre-tax basis.” There is additional guidance needed from the Treasury Department on variable pay, such as bonuses and sick leave and related employer wages rules.
Is this mandatory to offer to employees?
Treasury Secretary Steven Mnuchin has stated in verbal commentary that this deferral will be optional. The executive memorandum directs Treasury to issue guidance for the implementation of this payroll tax deferral. At this time it is unclear as to whether the employer or the employee has authority to opt out.
Are there standard forms to provide to employees?
At this time, the Treasury Department has not issued forms related to this tax deferral. Potential forms may include: notification of the deferral to employees; election to opt in to deferral; and election revoking the deferral election.
If an employee separates employment will the employer be liable for the taxes due?
Currently, the details of repayment are not clear. The executive memorandum states “Amounts deferred pursuant to the implementation of this memorandum shall be deferred without any penalties, interest, additional amount, or addition to the tax.” We anticipate that repayment responsibility will be delineated in the guidance, once released by the Treasury Department.
What actions should employers take right now?
Employers can begin discussing the implications of a deferral with their employees. There is a provision in the executive memorandum for the Treasury Department to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred.“ Employees should understand that elimination of the obligation is not guaranteed and there is not a clear understanding of how the repayment process will work for employees at this time.