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Deferring Payroll Tax Obligations in Light of President Trump’s Executive Actions

Deferment of Payroll Taxes

President Trump issued a memorandum for the Secretary of Treasury deferring certain payroll taxes, including the employee’s portion of Social Security taxes. Since the COVID-19 pandemic was declared an emergency under section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, the Secretary of Treasury has the authority to defer the withholding, deposit, and payment of the Old-Age, Survivors, and Disability Insurance (OASDI) tax, which is 6.2 percent of wages. This tax deferral is on wages or compensation paid during the period of September 1, 2020 through December 31, 2020 and subject to the following conditions:

 

  • The deferral should be made available to any employee whose wages or compensation payable during any bi-weekly pay period is less than $4,000, calculated on a pre-tax basis, or the equivalent with respect to other pay periods.
  • The amounts shall be deferred without any penalties, interest, additional amount, or addition to the tax. 

The Secretary of Treasury will be issuing guidance to implement this memorandum, and will also explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred under this memorandum. Since the memorandum indicates the deferral should be made “available”, it is not clear at this time if employees can choose to not have the deferral apply to their compensation. On Wednesday, August 12, the AICPA has requested guidance on the mechanics of how the deferment would work from the Treasury and the IRS.

 

Unemployment Aid

The extra $600 weekly in federal government aid that unemployed individuals were receiving discontinued at the end of July. With more than 30 million people on unemployment aid losing that extra money, President Trump called for individuals to receive up to an extra $400 a week through December 6th. The federal government is covering $300 and states may contribute the other $100.

 

Halting Evictions

President Trump’s executive order calls for the Health and Human Services Secretary, Alex Azar, and Centers for Disease Control (CDC) and Prevention Director, Robert Redfield, to work together to make sure homeowners and renters are able to stay in their homes. The order states “The Secretary of Health and Human Services and the Director of CDC shall consider whether any measures temporarily halting residential evictions of any tenants for failure to pay rent are reasonably necessary to prevent the further spread of COVID-19 from one State or possession into any other State or possession.”

 

Student Loan Payment Deferral

This memorandum calls for the waiving of student loan interest until December 31, 2020. The deferment applies to loans held by the Department of Education, but not loans held by private institutions.

 

There are still many unknowns about how these executive actions will be implemented, but we will keep you up to date as we learn more.

 

Any accounting, business, or tax advice contained in this communication, including attachments and links to outside sources, is not intended as a thorough analysis of specific issues, nor a substitute for a formal opinion, nor was it written to be used to avoid tax related penalties.

 

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