New Payroll Tax Deferral
On August 8, 2020, President Trump signed an Executive Order (“Order”) to defer the withholding, deposit, and payment of payroll taxes for individuals making less than $4,000 bi-weekly. The deferral period is from September 1 through December 31, 2020. There seems to be more questions than answers as we all await additional guidance.
One question is whether the Order is mandatory or discretionary for employers. The Order would require employers to re-program their payroll systems to withhold the proper amount of tax from employees’ paychecks before September 1, 2020.
Another question is whether employees will be required to pay back the payroll taxes that are deferred. The Order directs the Secretary of the Treasurer to determine how the deferred payroll taxes could be forgiven, but it would take Congress to pass legislation to forgive the payroll tax. Would the employer be liable for making payment of the tax if the employee cannot make payment for whatever reason?
Another question is how to calculate compensation on which the payroll tax is calculated. The Order says wages and compensation for employees qualify for deferral if less than $4,000 per bi-weekly pay-period but the Order does not define wages and compensation, or say whether that includes things like bonuses, commissions, or overtime hours. It also does not clarify what happens if the individual has more than one job.
The Order request that the Department of Treasury develop rules on the application of the Order, so hopefully there will be additional information or guidance on how the Order applies to employers and employees in the very near future.