There has been much publicity lately surrounding the payroll tax deferral recently authorized by President Trump. Specifically, in a memo dated 08 August to the Treasury Department, the President directed Treasury to defer collection of the employee portion of social security taxes beginning from 01 September until the end of the year. The deferral applies only to those hourly employees making less than $4,000 per bi-weekly period and salaried employees making less than $104,000 per year. Notably, the deferral decision is made by the employer and not by the employee.

On 28 August, the IRS issued Notice 2020-65 allowing employers to suspend withholding of these taxes and specifying that they be re-paid between 01 January and 30 April 2021. Beyond this, there exists very little guidance but many unanswered questions, including coordination with payroll service providers and treatment of employees who leave before the repayment period has begun.

It should be noted that if collection of these taxes is deferred until next year as the rule is currently written, employees may feel as if they have had a pay cut at repayment time.

While it is clear that the President wants to make the deferral a holiday this requires legislation and there does not appear to be much support in Congress currently. In addition, President Trump’s challenger, Joe Biden, has expressed concern for the financial impact this type of program would have on the social security fund. In other words, making these cuts permanent is not at all certain at this point.

For these reasons – and because there are no known penalties for failing to comply with the directive – many, if not most, employers are continuing to collect social security taxes for the time being. Our view is that this deferral opportunity is for some but not all.  Accordingly, this decision should be taken carefully.

Please contact your MooreDM advisor to discuss how this applies to your business and whether it is something which should be considered.

Thank you.