Recently, President Trump issued a Memorandum (click here) for the Secretary of the Treasury ordering a deferral of payroll tax obligations in light of the ongoing COVID-19 Disaster. The Memorandum calls for a deferral of an employee’s share of Social Security taxes (6.2% of wages up to $137,700) on wages below $4,000 per biweekly payroll (the annual equivalent of $104,000). The deferral does not apply to the employee’s share of Medicare taxes (1.45% of wages), Additional Medicare taxes (0.9% of wages over certain thresholds), Income tax withholdings, nor does it apply to the employer’s matching Payroll taxes. The deferral will be without any interest or penalties.
The Memorandum directs the Secretary of the Treasury to issue further guidance and to explore legislation or other avenues to eliminate the obligation to pay taxes which are deferred. The American Institute of Certified Public Accountants has also sent a letter addressed to the Treasury’s Assistant Secretary for Tax Policy and to the Internal Revenue Service Commissioner for additional guidance, including the following:
- Whether the employee is responsible for making an affirmative election to defer the payroll taxes, and whether that can be at any time during the deferral period.
- Affirming that if no election is made, taxes will continue to be withheld, deposited, and paid.
- Confirming that an eligible employee is an employee whose wages are less than $4,000 per biweekly period, or the equivalent amount depending on the employer’s pay frequency.
- Providing a model notice for employers to furnish to eligible employees to inform them that the election to defer Social Security taxes is available from September 1, 2020, through December 31, 2020.
- Clarifying whether the payroll amount used to determine eligibility is a cliff, such that if the wage amount for a specified pay period is above $4,000, or the equivalent amount based on pay frequency, no deferral is permitted.
- Confirming that the $4,000 limit is determined per employer, rather than total pay from all employers.
- Affirming that it is the responsibility of the employee, and not the employer, to pay the deferred payroll taxes.
- Stating which penalties are waived as a result of this deferral.
- Stating payment due date(s) for the deferred taxes and the mechanism for employees to pay the deferred taxes.
As a result of these and other unanswered questions, we recommend waiting for additional guidance before implementing these payroll changes. We will continue to provide updates as additional information becomes available.
We wish you continued health and safety.
The Partners of
Russell Thompson Butler & Houston, LLP