Executive Memo on Delaying Payroll Taxes

Chris Drouin |

With the markets recovering nicely and all the stimulus programs running their course, there has been little to bring to the forefront of your attention. However over the weekend, the President issued an executive memorandum regarding a payroll tax delay and we are watching for the next set of benefits for the underemployed and unemployed. This weekend's memorandum directs the Secretary of the Treasury to implement a delay of certain employees’ obligations to pay Social Security taxes. The payroll tax provision requires guidance to be issued by the Department of Treasury. Until that guidance is issued, many of the details have yet to be fleshed out.

To summarize key comments:

  1. This currently applies to the period September 1, 2020, through December 31, 2020.
  2. It is unclear whether employees are required to take advantage of the delay.
  3. The memorandum does not address what an employer should do if the employee opts to continue withholding payroll taxes.
  4. The memorandum only applies to the 6.2 percent Social Security tax. Not Federal Income or Medicare Taxes.
  5. The memorandum only applies to employees generally earning less than $104,000 annually. “Generally” is not fully defined yet.
  6. The memorandum only provides a delay of the tax obligation, not forgiveness. Therefore, whatever is not paid now, is currently expected to be paid in the future.  While the administration has voiced support for ending Social Security Taxes (AKA payroll Taxes), only Congress (the full House and Senate) can change the tax law. A president does have limited authority to delay collecting taxes.
  7. No penalties or interest shall apply to those who use the delay.
  8. There is no relief with respect to employers’ share of the Payroll Tax.

It is important to keep in mind that Congress and the Trump Administration are still negotiating on a potential COVID-19 relief measure, and that a compromise bill could supersede the President’s actions. As this situation becomes clearer, we will update you on what to expect and what actions to consider. There is no guidance on how much freedom to choose employees and employers will have.