On August 8, President Trump issued four Executive Orders, including Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster from September 1, 2020, through December 31, 2020. The remaining three orders addressed enhanced unemployment payments, eviction moratoriums, and student loan relief.
Under the terms of the order, withholding, deposit and payment of the employee’s share of the 6.2% Social Security tax are to be deferred (without any penalties or interest) on wages paid from September 1, 2020 through December 31, 2020. The 1.45% Medicare tax is not included in the deferral.
The deferral only applies with regard to employees with bi-weekly, pre-tax income of less than $4,000 (or a similar amount where a different pay period is used), which roughly equates to an annual salary of $104,000.
When the deferral ends on December 31, 2020, an employer would need to begin paying the deferred FICA taxes in January 2021, in addition to any other payroll taxes deferred under the CARES Act from March 27, 2020 to December 31, 2020.
The Treasury Department will be issuing guidance on implementation of the deferral, as many unanswered questions remain, such as whether employers MUST temporarily cease withholding the employee’s share of the tax in addition to not depositing and paying it. There is also uncertainty in the case of job changes during the deferral period.
There has been resistance in Congress to a payroll tax holiday as a stimulus measure, since it would provide benefit only to those who are currently employed at a time when millions are unemployed, and the benefit is paycheck to paycheck rather than a lump-sum. If the tax cannot be eliminated without legislation, that may not happen. As a result, employers may choose not to defer given the likelihood that it will require a large payment at the beginning of the new year.
You can read a more in depth analysis here and see the Memorandum in its entirety here.