Payroll Tax Deferral Executive Order

There has been a lot of talk around what would be the next economic stimulus package to get approved. While many initiatives seem to be stalled on the floor, President Trump took matters into his own hands over the weekend.

President Trump signed an Executive Order on August 8th deferring certain payroll taxes in an effort to put more money directly in the pockets of American workers. This payroll tax deferral Executive Order goes into effect on September 1, 2020. Please see below for a quick and easy breakdown of all the details.

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The Payroll Tax Deferral Executive Order

What does it mean?

The Executive Order puts in place an employee payroll tax deferral for the employee-paid FICA taxes. As of the date of the order, the employee will still be liable for the deferred taxes at a later date. President Trump has stated that the Secretary of the Treasury will explore avenues to eliminate the obligation to pay the deferred taxes back. 

What taxes are included in the Payroll Tax Deferral?

The Executive Order defers to other statutes that define the deferred portion as the employee portion of Social Security only (please note this was recently clarified and we originally included Medicare which is not deferred).

The Social Security tax is contributed to by both the employer and employee. An employee’s portion of the SS taxes are 6.2% of their gross wages. 

This would give someone who was making $2,000 every two weeks the equivalent of $124 back in their pocket every two weeks. 

There is no mention of employer taxes since there is already an option for employers to defer this portion of their payroll tax (employers will owe this money at a future date). 

There is also no mention of deferral of federal income taxes withheld from checks. Federal Income Taxes would be the larger portion and likely the portion your employees will be asking about when they start to hear that taxes are deferred. Be prepared to discuss this with your team. 

Who is eligible?

The deferral shall be made available with respect to any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis (that’s people earning under about $104,000 a year), or the equivalent amount with respect to other pay periods.

When does the payroll tax deferral go into effect?

September 1, 2020, through December 31, 2020.

Please keep in mind, this is a deferral of taxes. These taxes could be due. There is a clause in the EO that states:

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


Remaining Questions

If you defer when will you owe it back? 

This question has not been answered.

What if you choose not to defer but the liability is erased for others, will there be any reciprocity for employees who chose to pay the taxes?

There is no guidance here since it is just a deferral at this time but something to consider as you make decisions related to the tax deferral.

Don’t Forget to get the Recorded Webinar Video Below!

Have questions or need guidance regarding how to apply the payroll tax deferral? Contact our HR Guides and we will happy to help!