On Aug. 8, 2020, President Donald J. Trump ordered the U.S. Department of Treasury (the Department) to defer collecting certain payroll taxes from Sept. 1 to Dec. 31, 2020.
Because the order is for a deferral, the unpaid taxes will need to be recouped at a later time, unless the Department can find an avenue to eliminate the obligation to pay the taxes.
Under the order, employers will be able to defer taxes that help pay for Social Security and Medicare for individuals who receive less than $4,000 during any bi-weekly pay period (the equivalent of $104,000 per year) on a pre-tax basis.
Affected taxes will be deferred without any penalties, interest, additional amount or addition to the tax. The White House’s position is that deferring this tax will alleviate the hardship of individuals affected by the economic consequences of the COVID-19 pandemic.
Employers should balance the benefit of releasing affected taxes to eligible employees against the possibility of having to recoup those taxes later. Employers should also take time to evaluate how quickly they can alter their payroll practices and procedures in case they decide to opt for this payroll tax deferral.
Refer to the attached Compliance Bulletin for details.