Edited content from the Journal of Accountancy article with the same title.
President Donald Trump on Saturday issued an executive memorandumto defer the withholding, deposit, and payment of certain payroll taxes paid from Sept. 1 through Dec. 31, 2020.
The presidential memorandum was one of four the president issued on Saturday as congressional negotiators struggle to find agreement on a bill to extend relief during the COVID-19 pandemic. The other orders involve compensation to unemployed individuals, evictions, and student loan relief.
Read the fine print/Consult a Professional
The news says Executive Order, the www.whitehouse.gov says it is an Executive Memorandum…different in some ways than an Executive Order and once again, we are faced with trying to implement something that is half-baked for which we do not have final guidance or regulations. Be careful with this because you do not want to be on the hook for employees’ taxes that you did not withhold and then you have to pay them back. Wait until better guidance comes out that indicates who is responsible for paying the “deferred” taxes. Right, “deferred” taxes…not yet sure if or how forgiveness will happen. Employees…read “deferred”. If you have to pay them back, it will probably be with your 2020 tax return. This is NOT free money, right now there is no legislation for forgiveness. They are going to “explore” it. These are crazy times for CPAs. It is nearly impossible to do our jobs well when the rules are constantly changing, poorly written and tossed out more for sound bites than being well conceived or implemented.
The deferral applies to any employee whose pretax wages or compensation during any biweekly pay period generally is less than $4,000. The tax payments are deferred without any penalties, interest, additional amount, or addition to the tax. Problem: Have not seen guidance that indicates whether anyone making more than $104,000 ($4,000 times 26) is ineligible or if your gross during these 4 months is under $4,000 bi weekly makes you eligible.
The deferral applies to the employee portion of the old-age, survivors, and disability insurance (OASDI) tax under Sec. 3101(a) and Railroad Retirement Act Tier 1 tax under Sec. 3201. This is the Social Security Portion of FICA. The 6.2%. It is not the medicare portion of 1.45%.
Employees Opt in
From what I can see, employees opt into this program, so they choose if they want to “defer” their social security taxes until they are paid back or forgiven at a later date.
Treasury has the authority under Sec. 7508A to delay tax payments for up to a year during a presidentially declared disaster. The president on March 13 declared the coronavirus pandemic a national emergency under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, P.L. 100-707.
Treasury is directed to issue guidance to implement the order and to explore ways to ultimately eliminate the obligation to pay the deferred taxes.
Employers have already had 50% of their portion of payroll tax payments due during the period that begins on March 27, 2020, and ends Dec. 31, 2020, delayed until Dec. 31, 2021, and the other 50% until Dec. 31, 2022, by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136.
Hopefully you have a payroll provider who can assist with the specifics and the implementation of this for you. Otherwise consult your CPA and have patience because we are all trying to figure it out as we go.