President’s Executive Memorandum on Deferring Payroll Taxes – An ESC Update

On August 8, the President issued an Executive Memorandum allowing employees who make less than $104,000 a year to defer their payroll taxes starting September 1 through the end of 2020. This is an update on what we know as of today.

The business community is awaiting guidance from the Treasury Department regarding the implementation of this memorandum. The Secretary of the Treasury, Steve Mnuchin, has stated that participation will be voluntary. Therefore, employers can choose not to allow their employees to take advantage of this deferral. In addition, the President’s top economic advisor, Larry Kudlow, stated that the President is looking for ways to “fully forgive” the payroll tax deferral. But nothing has been issued in writing from any US Government entity.

In response to this memorandum, businesses are concerned that employers will ultimately be responsible for the repayment of the payroll tax amounts deferred. Federal tax law and IRS regulations make it clear that the employer is liable for unpaid payroll taxes. Organizations such as the National Association of Professional Employer Organizations (NAPEO), the American Institute of Certified Public Accountants, the National Payroll Reporting Consortium (NPRC) and the US Chamber of Commerce have all submitted requests for clarification that employers will not be ultimately held responsible for making these deferred payments. Last Thursday, the NPRC released a second statement to Treasury outlining their concerns with the deferral memorandum. And – in an election year – this proposal is getting political pushback. On Friday, 142 House Democrats sent a letter to the President demanding he reverse his ”recent executive action on Social Security payroll taxes and abandon  [his] call to defund Social Security by eliminating the payroll tax permanently.”

Key provisions in the initial memorandum:

  • Applies to the period September 1, 2020, through December 31, 2020.
  • Does not address what an employer should do if they decide to continue withholding payroll taxes.
  • Only applies to the 6.2 percent Social Security tax on employees’ earnings.
  • Only applies to employees generally earning less than $104,000 annually.
  • Only provides a delay of the tax obligation, not forgiveness.
  • No penalties or interest shall apply to those who use the delay.
  • There is no relief with respect to employers’ withholding obligation.

With less than one week left before the memorandum goes into effect, we are all waiting for Treasury to issue guidance on how the payroll tax deferral will work. Additionally, Congress and the Trump Administration are still negotiating on a potential COVID-19 relief measure. With that in mind, a compromise bill could supersede the President’s actions. Stay tuned for more information.