Tagpayroll tax

President Trump Signs Executive Order Deferring Certain Payroll Tax Obligations Through December 2020

By: Amanda Wilson & Ferran Arimon

On Saturday, August 8, President Trump enacted four executive orders after Democrats and the White House were unable to reach an agreement on a new stimulus bill last week. Among the four executive orders, the President included a payroll tax deferral. The relevant order states as follows:

To that end, today I am directing the Secretary of the Treasury to use his authority to defer certain payroll tax obligations with respect to the American workers most in need. This modest, targeted action will put money directly in the pockets of American workers and generate additional incentives for work and employment, right when the money is needed most.

The order calls for deferral of the employee portion of payroll taxes, 6.2% for Social Security and 1.45% for Medicare, for workers making less than $100,000 a year through the rest of 2020. Any amount deferred pursuant to the implementation of this order may be deferred without any penalties, interest, additional amount or addition to the tax.

However, as it stands, employees will still owe the deferred taxes at the end of the year since President Trump cannot eliminate the tax liability without legislation. In an effort to address the concerns regarding payment at the end of the year, the following language was also included in the White House’s Memorandum on Deferring Payroll Tax Obligations:

The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.

President Trump has stated that if reelected he plans to forgive these deferred taxes and make permanent cuts to payroll taxes. Again, though, this requires legislative action. If the President is not reelected, workers will presumably be required to pay these taxes at the end of the year.

The other three actions signed on Saturday include as much as $400 in enhanced unemployment benefits, an executive order on assistance to renters and homeowners and a memorandum further deferring student loan payments through December 31, 2020.

CARES Act Allows Employers to Defer Payroll Taxes

By: Amanda Wilson and Ferran Arimon

The Coronavirus Aid, Relief, and Economic Security Act (CARES) Act was signed into law by President Trump last week. In an attempt to address cash flow concerns of businesses, Section 2302 of the CARES Act gives employers and self-employed individuals the ability to defer certain payroll taxes.

Specifically, the following taxes can be deferred:

  • The 6.2% employer’s share of Social Security tax due under Section 3111(a) of the Internal Revenue Code;
  • The Tier 1 Railroad Retirement Tax Act tax due under Sections 3211(a) and 3221(a) of the Internal Revenue Code, which corresponds to the 6.2% Social Security tax due; and
  • For self-employed individuals, 50% of the 12.4% tax due under Section 1401(a) of the Internal Revenue Code on self-employed net earnings.

This deferral is allowed for payroll taxes incurred between March 27, 2020, (the date of enactment of the CARES Act) and December 31, 2020.  The deferred amounts will be treated as timely paid if half of the deferred taxes are paid by December 31, 2021, and the other half are paid by December 31, 2022. There is no cap on the amount of payroll taxes that may be deferred under this provision.

Employers and self-employed individuals should be careful before electing to defer payroll taxes if they are considering taking out a Small Business Act loan.  The payroll tax deferral is not available, and thus penalties and interest would likely apply, if the employer or self-employed individual obtains a Small Business Act loan under the Paycheck Protection Program portion of the CARES Act and that loan is later forgiven (a discussion of the Paycheck Protection Program can be found here).

Be sure to visit our Coronavirus (COVID-19) Response Team page to keep up-to-date on the latest news.

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