Executive Memorandum Permits Individuals to Defer Certain Payroll Tax Obligations

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

On August 8, 2020, President Trump issued a memorandum with the stated purpose of providing “further temporary relief … to support working Americans” by enabling the deferral of employee Social Security taxes for specific individuals. Specifically, the “Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster” directs the Secretary of the U.S. Department of the Treasury to defer (not suspend) the withholding, deposit, and payment of the employee component of Social Security taxes on wages paid during the period of September 1, 2020, through December 31, 2020. The deferral is to be made available only to employees whose biweekly compensation “generally is less than $4,000, calculated on a pre-tax basis.” The equivalent in other payroll frequencies is $2,000 weekly; $4,333.33 semimonthly; and $8,666.66 monthly. Any amounts deferred pursuant to the memorandum will not be subject to either penalties or interest. The Secretary of the Treasury is instructed to issue guidance to implement the memorandum and to “explore avenues, including legislation, to eliminate the obligation” for taxpayers to repay the deferred taxes.

Key Takeaways and Considerations

  • Additional guidance is required from the secretary of the Treasury and/or the Internal Revenue Service (IRS) on how to implement the deferral.
  • The memorandum does not include any deferral of the employee portion of Medicare tax or federal income tax.
  • Absent statutory or regulatory authority, it remains unclear if employers may be subject to penalties for failing to withhold the employee component of Social Security taxes. During an employment tax audit, employers are obligated to pay any unpaid taxes to the IRS.
  • Employees may be concerned that they may have to repay the deferred tax amounts, though there is no clarity on when (if ever) such a repayment would be required.
  • If implemented, the relief provided in the memorandum would be in addition to the relief provided under Section 2302 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided for the deferral of the employer portion of Social Security taxes.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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