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Pivotal Moment Minute: President's Executive Order Gives Payroll Tax a Holiday - Possibly Permanently


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August 11, 2020

President's Executive Order Gives Payroll Tax a Holiday - Possibly Permanently - Payroll Tax Break for Employees Start September 1

President Trump on Saturday Night, August 8...  signed a series of executive orders and memorandums that would provide employees financial relief on payroll taxes and those who lost their jobs due to the pandemic.

Trump Signing

Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster

Stimulus talks had stalled on Capitol Hill, to try to address last month’s ending of supplemental $600 unemployment, student loan bills and eviction notices along with the payroll tax deferment.

The administration felt this targeted action would help 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 defers the employee’s obligation to pay a 6.2% Social Security tax per paycheck. It applies to people who are making less than $4,000 every two weeks, which works out to an annual salary of $104,000.

The order also instructs the Treasury Department to look into how the government can forgive the deferred tax payment. But for right now, at least, observers say the tax obligation isn’t being forgiven.

Specific Points About the Payroll Tax Relief for Employees

Check Envelope

  • Payroll tax relief, as outlined in the directive, would require employers to take steps to ensure compliance, including working with payroll administrators to adjust their systems by Sept 1. (SHRM)
  • Employers need to explain to employees that their take-home pay would go up through the end of the year, 2020, but may be required to repay these deferred taxes at a future date (historically unlikely)
  • Payroll tax relief only applies to the Social Security portion of FICA that the employee pays at 6.2%. This portion is capped each year at $137,700. 
  • A person making $50,000 of income could see annual savings of $3100 or $258.33 per month.  
  • More information from the Treasury Department forthcoming by end of the week on employer requirements.

NOTE FOR EMPLOYERS: Section 2302 of the CARES Act provides a deferred payroll tax for employers. Continue...

The CARES Directive for Employers and FICA from March

Section 2302 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March and implemented through IRS Notice 2020-22 and a series of IRS FAQs, allows eligible employers to defer the deposit and payment of the employer's share of Social Security FICA taxes for the period beginning March 27, 2020, through Dec. 31, 2020.

The deferral also applies to 50 percent of the equivalent taxes incurred by self-employed persons. The deferred payments must subsequently be paid to the Treasury Department, with half due by Dec. 31, 2021, and the other half by Dec. 31, 2022.

The CARES Act provision and related guidance did not apply to employees' share

 Preparation Steps to Take for this Payroll Tax Relief Order

IT in hand

For now, HR payroll managers should:

  • Discuss with their payroll administrators steps to adjust their payroll systems to exclude employees' share of FICA Social Security taxes beginning Sept. 1, pending the issuance of Treasury guidance.
  • Prepare to notify employees that possibly less of their pay will be subject to payroll withholding, although the reduction in payroll taxes may have to be paid back in the future.
  • Expect questions from employees who may be confused about current and future paycheck adjustments.

Information Provided by SHRM , , and MarketWatch

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